Unbundling untangled

By Chris Keall

Monday 1st March 2004

While you were snoozing at the beach, did New Zealand miss a rare chance to gain faster, cheaper internet for the masses? "Local loop unbundling" died a quiet death via a Christmas Eve press release from Telecommunications Commissioner Douglas Webb, followed by a few analytical articles packed with migraine-inducing acronyms. So what's it all about?

The "local loop" is the copper telephone line that runs from your suburb's local telephone exchange to your home. Telecom owns and runs it all. A gaggle of companies have found it viable to build rival fibre optic cable networks around our largest cities' central business districts. But to dig an alternative network around our sprawling suburbs and beyond would be just plain uneconomic.

Critics say Telecom's local loop monopoly has inflated the price of the company's main fast internet offering, JetStream, which uses DSL (digital subscriber line) technology to squeeze broadband speed from the bung old copper phone line running under your driveway. Hence the number of New Zealand homes with broadband is in the low single digits compared with 22% in the US and a whopping 67% in South Korea.

Legislation passed in 2001 required the Telecommunications Commissioner to investigate the desirability of "unbundling", or making Telecom share access to its local loop. TelstraClear, Ihug and others would be able to go to your local phone exchange and install their own gear, which would allow you to make phone or internet calls that they could control and bill you for. Commissioner Webb's draft report, released in September, thought that this would be a good thing, more or less. But come December 23 - and perhaps after some lobbying; the government is, after all, the holder of Telecom's Kiwi Share - unbundling was rejected.

It's easy to see Webb's about-face as politically motivated, but it does contain certain logic. For starters, it's moot whether there's any direct link between unbundling and cheaper broadband. Yes, almost every other developed country has some degree of unbundling, but it's hard to draw direct parallels. For example, South Korea has a large, densely packed population, making it a much more amenable situation for broadband pricing than New Zealand. And, in any case, Koreans' home broadband installation is state-subsidised. In the US, internet-capable cable TV providers and satellite-based ISPs provide much more serious competition to DSL than they do here. There's also a third complication: even if given access, it would take a lot of money and time for TelstraClear to install gear around Telecom's exchanges (Telecom itself took years), and it's not cut and dried that they could service our relatively sparse population any more cheaply.

Webb did throw rival telcos a bone, recommending that Telecom be made to share "bitstream access" to its local loop. Essentially, it would have to sell wholesale access to its DSL network for a fixed low price.

On the face of it, this looks like rather a juicy morsel. After all, DSL is the sexy, fast internet part of the local loop. But it's a second-rate consolation prize.

While Telecom will probably be forced to share JetStream at a set price, this would only provide a 128 kilobit per second upstream (or "sending") connection. That's three times the speed of a dial-up modem, but less than a third the speed that users of mainstream JetStream plans enjoy. And 128Kbit/sec is just not fast enough for voice calls over the internet, or for playing live video or music - in short, all the things that make broadband useful and fun.

Without full access to the rest of Telecom's local loop, even full-speed DSL would not have been that compelling as rival telcos could not have offered customer-friendly all-in-one offers - like Telecom's combined Xtra/phone bills.

In theory, all is not lost for fans of unbundling. Communications minister Paul Swain won't rule on Webb's report until May, but a third change of heart seems unlikely.

That's not to say Telecom can sit smugly on a broadband monopoly. For some years now, Ihug has pushed its satellite-based Ultra service. More significantly, broadband provider Woosh Wireless has begun rolling out its two-way wireless service in Auckland and Invercargill. Other cities and regions are scheduled to follow this year.

Woosh costs the same as Telecom's JetStream DSL (around $15 a week), though it's not quite as quick and suffers from "latency" - a slight lag when you send stuff. Yet it's early days. Woosh will get tweaked for speed, and the company plans to start offering a voice plan in a couple of months. The idea is that a box enables your ordinary phone to make calls over the internet, and you don't require the services of Telecom (or TelstraClear). With internet telephony all your phone calls are covered by the monthly flat fee you pay your ISP. Toll charges? Forget 'em.

This is new and complex technology. But once it's up and running, it has the potential to give Telecom a serious run for its money - no regulation required.

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