Failing government policies
After a five-year-long battle with the New Zealand Government/Commissioner, TelstraClear has thrown in the towel and abandoned its ambitions to operate a national telecoms service in competition with the incumbent Telecom New Zealand.
This may be a victory for the incumbent, but it is a severe loss for the country. With New Zealand already at the bottom of the global penetration list for broadband, the likelihood of Telecom now becoming more active has lessened even further with its major competitor withdrawing from the market.
Also, TelstraClear’s retreat has delivered a severe blow to the pro-competition lobby. TelstraClear has been the major contributor to pro-competition submissions and, its lobbying power has provided other valuable resources to the industry over the years.
It will be interesting to see how the government now intends to stimulate innovation and competition in the New Zealand telecoms market. Competition is the key driver for this purpose, and TelstraClear’s retreat will severely undermine future progress.
I would argue that New Zealand, more than any other country in the western world, depends on telecoms for its future. Its remoteness from key international markets requires a high level of telecoms service penetration in new markets such as broadband, triple play, broadband TV, etc. And, furthermore, if New Zealand wants to promote its unique lifestyle features, telecoms is a major element to underpin such a strategy.
Without first-class access to such services overseas businesses and residents will have little interest in considering New Zealand. Without competition Telecom will continue to delay the introduction of new services – a decision that will be based on profit and not on the national interest. It is completely up to the government and its regulators to avoid such market dominance and to stimulate innovation through competition.
As far as I know this is the first time that telecoms competition has failed to such an extent anywhere in the world.
Back to the Trans-Tasman future
As I have said many times, Telstra’s role in New Zealand should be questioned. The New Zealand market is very small and I have never been able to see a clear role there for a company the size of Telstra. It should have bought Telecom if it was ever serious about the New Zealand market.
It now appears that it is retreating to its traditional 100-year-old interest in the country –Trans-Tasman traffic. Perhaps it needs a presence in New Zealand for that purpose alone – all the other services will arguably reduce the profitability of the company.
It is interesting to see that this is the second full circle for the company. After an early move into the New Zealand resale market in the mid-1990s the company decided to retreat into the Trans-Tasman business, and now, after the Saturn and Clear ventures, the picture is looking awfully familiar once again.
Niche NGN ambitions
For the time being, however, things have not gone that far yet. TelstraClear has indicated it will concentrate on expanding its own residential assets in Christchurch and Wellington, as well as focusing on its corporate and government business, closely linked, of course, to its Trans-Tasman business.
But, principally, it is about maximising its on-net assets rather than its off-net (resale) activities.
However significant new investments are needed to optimise these assets, and I question whether the New Zealand market in this niche segment will be big enough to deliver a reasonable return on investment.
While, a few years ago, the TelstraClear network could have been classified as superior to that of Telecom’s, the arrival of IP has eliminated that advantage and TelstraClear needs to become more serious about integrating the Saturn, Clear and Telstra systems.
For this purpose, investment in NGNs will be needed before the cost benefits are delivered. It will be interesting to see if Telstra can compete with Telecom in the corporate and government markets at a niche market level. Although this is possible it does require a very high degree of IT skill to move into a market that is rapidly changing from telecoms into IT. To date potential IT customers have avoided using telcos for such services. In Australia, Telstra has a very bad record indeed, and it certainly shouldn’t be used as an example of how to move forward.
Ongoing mobile saga
It is now even more unlikely that TelstraClear will roll out its own network – we have consistently maintained that this would never happen. Nevertheless the company does need a good mobile offering for its corporate customers.
I would argue that, while its current arrangement with Vodafone might not be ideal, it is still more profitable than running its own network in a market which, with 86% penetration, is rapidly reaching saturation point.
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