Telecom rules, ok

By Russell Brown

Thursday 1st July 2004

So you heard Telecom's Theresa Gattung and Telstra Clear's Rosemary Howard going hammer-and-tongs on Morning Report, and you nodded knowingly when Paul Swain confirmed that Telecom's local loop would not be unbundled, and that the telecommunications commissioner's recommendations on designation of DSL service would be followed. But deep down, you're not quite sure what it actually means to you and your PC, at home?

Well, it's not all bad: fast internet will become a little cheaper - but, for most people, not any faster. As part of the compromise solution that replaced the commissioner's initial proposal for full unbundling, one particular fast internet service has been designated.

Telecom's competitors will be able to sell a DSL service (just like JetStream but under another brand) using Telecom's exchanges and its residential copper network. That service will offer 256Kbit/s downstream and 128Kbit/s upstream - faster than dial-up, but hardly deserving of the "broadband" tag that has been attached to it.

In recent statements, Telecom has predicted that it could lose a third of its retail broadband business to competitors by the end of 2005, when it anticipates 250,000 "broadband" connections nationwide. But if its rivals do pick up that much of the business, they'll have to do it by marketing, because there'll be precious little room for differentiation on price or service.

The speed of the service and the cost of access from Telecom having been fixed in regulation by the commissioner, the market rate (unless somebody fancies losing money) will effectively be determined by the huge weight in the market of Telecom's Xtra ISP. Tasty little add-ons such as voice calling or real-time video have been explicitly ruled out by the commissioner.

We seem set to become a land of not-very-fast fast internet. Unless, of course, Telecom decides that it's shedding too much business, and opens up a new step at, say, 512Kbit/s DSL, where its rivals simply cannot go. Unless the very limited designation is revisited, the fast internet market will run out of steam.

On the other hand - and somewhat ironically - Telecom's new wholesaling regime may deliver what the commissioner didn't. It's worth noting that not all of Telecom's competitors were upset by the decision not to mandate unbundling. At least some smaller internet service providers (ISPs) were delighted. Participating in the unbundled network would have meant huge costs in installing equipment in exchanges - they would far rather simply take advantage of the wholesaling deals that Telecom has unveiled in an effort to demonstrate its goodwill.

This has the advantage for Telecom of doing roughly what it always wanted to do anyway. For perhaps five years, Telecom has outlined a vision in which most of its competitors are effectively sales agents for its comprehensive IP (Internet protocol) data network - referred to these days as the NGN, or Next Generation Network - which will eventually carry voice traffic as well as data. The problem is, in the absence of meaningful infrastructure competition, the market will depend entirely on Telecom's goodwill.

Away from Telecom's copper there is, of course, wireless internet - which is proving Rosemary Howard right on at least one frequently-made claim: there are some problems to be worked out yet. The apparently well-organised Woosh Wireless venture has been obliged to bail out of three of its five Probe broadband contracts with the government to focus on getting its Auckland network in better shape. The company launched last year, declaring it was only months away from a voice-calling service, but many early internet customers experienced patchy coverage and poor performance.

Less glamorous names may fare a little better: the Counties Power-owned Wired Country - which provides a high-speed wireless backbone through which retail ISPs deliver service - has begun to reach out to Auckland from a Sky Tower base. One ISP, EzySurf, is offering deals - its top rate is an all-you-can-eat 2Mbit/s service for $120 - that makes Telecom's full-speed JetStream look pretty tired. Wireless pioneer Ihug also has a new wireless product, based on Wired Country's infrastructure, that combines fast internet and voice calling. Another Telecom peace offering - slightly cheaper national connections through "unbundled partial circuits" - will improve the economics for those who want to connect local wireless projects back to the rest of the internet.

But, at the end of the day, a great deal rests on what TelstraClear decides to do, now that it has lost the argument for unbundling. It can't keep treading water the way it has for the past three years, and the speculation is that Telstra will either sell up and bail out - or start cabling again. Both the fibre optic cable technology and the digging techniques have improved since its precursor Saturn cabled Wellington - offering a lot more bang for the buck, and the prospect of very high bandwidth fibre to the kerb in Auckland suburbs. But it'll take perhaps a billion of those bucks to make a meaningful venture.

This is, it must be said, the dream scenario. We might go from talking wistfully of one or two megabit connections to tens or hundreds - enough bandwidth for TV, voice and blazing fast internet. Telecom, which presently has every reason to delay a return to residential fibre, would get moving soon enough. Infrastructure competition at last! But that depends on what Telstra Clear does next. Indeed, it might be said, so does confidence in the entire regulatory model.

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