Unbundling to be investigated

Yesterday was the first anniversary of the passing of the Telecommunications Act and the Commerce Commission is celebrating by announcing a probe into local loop unbundling.

Yesterday was the first anniversary of the passing of the Telecommunications Act and the Commerce Commission is celebrating by announcing a probe into local loop unbundling (LLU).

The investigation will get underway in March and will be carried out under section 64 of the act, which requires the commission to look at whether access to the unbundled aspects of Telecom's local loop and access to the unbundled parts of Telecom's fixed public data network should be regulated.

Local loop unbundling is the process of making an incumbent carrier's local network copper cables available to competitors, allowing them to offer DSL and other services direct to customers.

LLU is being implemented in Europe, but progress has been slow, with the European Competitive Telecommunications Association claiming last month that just 0.01% of the continent's incumbents' lines have been unbundled to competitors.

In Australia, Telstra was required by law to unbundle its local loop in August 2000 and in a strange twist, Telecom's Australian subsidiary AAPT is taking advantage of the unbundling, despite Telecom being opposed to it in New Zealand.

At a briefing last year, Telecom government relations manager Bruce Parkes said LLU "hasn't worked anywhere, is tangled up in regulatory debates, companies relying on it are going broke and uptake is well below expectations".

Telecom CTO Murray Milner conceded AAPT was accessing Telstra's local loop but said the experience was showing the economics don't work in most cases.

"It doesn't work, except in a small number of exchanges with a high number of business users."

AAPT has restricted its rollout on Telstra lines to exchanges in urban CBDs, he says.

Tuanz chair Judith Speight says while LLU "hasn't [worked like] a dream overseas, that doesn't mean its not a good idea and we're thrilled that the commissioner has got to this item on his agenda.

"New Zealand is the last country in the OECD to not just investigate but actually implement LLU.

"If we can get an effective solution, it will be a far more effective use of the national infrastructure."

Telecom's Parkes disagrees, saying LLU is "a regulatory policy designed in the early to mid-'90s in the US, when the idea of infrastructure and network competition was seen as a very remote possibility.

"No-one thought anyone would ever build another network."

History has since proved different he says "and as months go by, the case for LLU gets worse, especially in light of wireless."

True competition comes from different networks, especially when they run on different technologies, he says, citing the New Zealand mobile market as an example.

LLU would bring about the superficial appearance of competition "but underneath, it's still the same Telecom network and the ability to compete on price is limited because everyone is bound by the same wholesale price."

To those who say that's all very well, but Telecom got a ready-made network when it was privatised in 1990, Parkes replies that Telecom has spend $3 billion since then upgrading the PSTN.

TelstraClear chief executive Rosemary Howard disagrees with Parkes on the level of competition LLU provides.

"It's a very old-fashioned view that you need facilities competition to provide real competition.

"In 80% of the geography of any country there is as yet no way challengers can build access technology."

She says that in Australia, broadband penetration has increased from 1.5% to 3% in the two and a half years since Telstra's local loop was opened up, thanks to its competitors being given access.

"New Zealand is still around the 1.5% mark and LLU will be good for New Zealand - it'll be good for customers, for the whole industry and for Telecom, because what they get from [reselling the local loop] will give them money to spend on their network."

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Tags local loop unbundling

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