Telecom NZ faces break-up

Lachlan Colquhoun in Sydney
11 Dec 2006

A parliamentary committee on the future of Telecom New Zealand is due to report its findings in this month, with a growing expectation that it will recommend the structural break up of the former monopoly.

TNZ has already responded to government plans to unbundle the local loop with its own plan for the operational separation of its retail and wholesale arms, but the committee's recommendations are believed to favor the structural break-up of the company into three separate parts each with its own management.

Quoting sources from inside the parliamentary committee, NZ reports claim a likely scenario is for TNZ to be split into distinct retail, wholesale and network arms with the three separate entities each listed on the NZ Stock Exchange.

The changes go much further than those contained in the Telecommunications Amendment Bill, which includes the loop unbundling provisions and other pro-competition measures.

TNZ's proposal is modeled on the Open Reach structure which Britain's BT group negotiated with that country's regulators last year.

It establishes a totally stand-alone wholesale unit overseen by an independent group and performing against a set of legally binding undertakings to be negotiated with the government. Network activities would be the responsibility of the wholesale arm.

'We have modeled our approach on British Telecom, and there it was a very explicit agreement that in return for taking structural separation off the table, 96 detailed and legally binding undertakings were agreed,' TNZ's chief executive told the parliamentary committee in a September submission.

The TNZ proposal, however, has been criticized by competitors and user group Internet New Zealand, whose submission to the parliamentary committee proposes the creation of two separate telecom companies with separate chief executive officers.

'The model TNZ proposes is misconceived and well short of the benchmark BT model they adopt,' said Jordan Carter, policy officer for Internet New Zealand.

'Structural separation eliminates both the ability and the incentives to restrict competition and in particular it eliminates the incumbent's incentives and possibilities to raise the costs of its rival firms by reducing quality or increasing the cost of access.'

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