Progress in NZ at the expense of competition
Shortsighted industry
When I addressed the TUANZ conference in May 2006, I very much supported Teresa Gattung’s overtures to the industry, after the government’s announcement it would force Telecom to make structural changes.
However, I was very critical about the industry in New Zealand, whose total focus was to get some quick fixes to the wholesale regime in relation to local loop unbundling (LLU). Telecom had made it very clear that it would take until 2008 before new wholesale products would become available.
BuddeComm consistently warned that New Zealand was fighting battles which occurred in Europe in the early 00s and in Australia in the mid 00s, and that in the meantime the world had moved on. By 2008, also in New Zealand, the discussion would have moved onto fibre networks. Unfortunately nobody at that time wanted to seriously discuss that issue and started to beaver away in what we called old-world wholesale issues.
Telecom fibre plans are no surprise
Based on our analyses of Telecom NGN plans going back to the early 00s, we were certain that Telecom did have a plan which would see them moving deeper into fibre networks, as a matter of fact we had mentioned the company at several occasions in our global research reports as being one of the early adopters of this new concept and their GEN-I initiative also made it very clear to us where their future thinking was. It therefore didn’t come as a surprise to us that they announced their new fibre plans in the way they did it, making 2,000 copper based exchanges obsolete in this process. What does puzzle me is that the industry obviously failed to negotiate a good transition plan with Telecom and that this was not more firmly specified in the new legislation.
However, we are very disappointed that Telecom at the same didn’t indicate how they are going to take the rest of the industry with them on this exiting new path. This is certainly against the sentiment that I first encountered in May 2006 and that we have quite publicly supported over the last 18 months.
As a matter of fact, the lack of a visionary national approach could potentially set the country back many years, basically throwing it back into the dark days of the monopoly. Surely the new operational separation legislation will eventually assist the industry. However, without Telecom’s support that could take many years.
No progress in wholesale
At the same time Telecom, has failed to come up with sustainable wholesale products that would provide the industry with opportunities to start developing more innovative broadband services, rather than the current more-of-the-same Telecom products, perhaps at slightly cheaper prices. We certainly don’t call that a good outcome of the wholesale debate.
Current indications are that wholesale prices will go up and the already meager wholesale margins will go down. At the same time the new fibre announcements will make it impossible for competitors to invest in technologies such as DSLAMS which will become obsolete within the next 3 years, as there is no place for them in a fibre network.
In good faith, the industry has been pre-empting Telecom’s positive attitude and have made tactical changes to their organizations, which has led to a substantial increase of their customer base in anticipation to bring them over to the new environment. They now see that the emperor is not wearing any clothes, and they are left stranded and in a financially very dangerous position.
Broadband prices double that of other countries
A simple calculation indicates that as a result of these higher wholesale costs, the entry level of broadband in New Zealand will increase to around $45. Currently in comparable countries that level is a low as $9.95, but on average between $19.95 and $29.95.
These high broadband prices will be a major set back for economic progress and innovation in New Zealand, something the OECD has already been mentioning to New Zealand for many years.
New endless regulatory debates?
The fact that Telecom didn’t come up with a wholesale strategy indicates to me that they have abandoned their cooperative approach, or it could even let us to conclude that their supportive behaviour has all been smoke and mirrors. If they do have a plan to take the rest of the industry with them, why didn’t they announce that at the same time? This is a very worrying development indeed.
We have learned from the past that innovation will be stalled when there is no or little competition, and the current uncertainty alone is enough to kill any future investments made by Telecom’s competitors.
If the government has to now step in, it will mean more regulatory and perhaps even further legislative processes which are going to take months, if not years. In the meantime this will only increase the damage already done to the industry.
Paul Budde
The future of the New Zealand telecoms industry will be discussed at next week’s BuddeComm Roundtables.
‘State of the Industry’ Roundtables with Paul Budde
cost $425 pp excl GST
Auckland - Monday 3rd December 2007
Wellington - Tuesday 4th December 2007
Theme: New Zealand Telco Market moving into 2008
Venue:
Auckland – Monday 3rd December
Duxton Hotel Auckland, 100 Greys Ave, Auckland
Wellington – Tuesday 4th December
Duxton Hotel Wellington, 170 Wakefield Street, Wellington
Booking:
Online registration:
http://www.budde.com.au/consultancy/public-workshops-seminars.html
Telephone: 02 4998 8144
Email: pbc@budde.com.au
