Govt warned not to leave Telecom out of broadband rollout

Wednesday 9th June 2010

The government would exclude Telecom from its proposed roll-out of high-speed internet fibre at its own peril, according to a telecommunications analyst.

IDC telecommunications research manager Rosalie Nelson says if Telecom misses out on the government’s $1.5 billion roll-out of fibre to the home, it will create a “war of attrition” between the country’s biggest owner of fibre and whichever company or companies win the tender.

Ultimately it will lead to a diluted outcome as fibre and the existing copper network, which can offer cheaper services, go head-to-head.

“Telecom can either participate, which they are trying to do by talking about structural separation, or they can compete,” Nelson told a media briefing in Auckland organised by Telecom.

“I struggle to see an outcome that doesn’t involve Telecom in some kind of way or form, simply because of the network Telecom and Chorus already have.”

Telecom’s network operator, Chorus, which it created under the terms of the operational separation performed under pressure by the previous administration, offers its wholesale rivals the same pricing, terms and conditions, and owns and operates the country’s copper network.

It also has about 25,000 kilometres of fibre laid throughout the country, making up much of New Zealand’s core telecommunications network.

Nelson says that gives Telecom an edge over its rivals with customers who are unlikely to switch to the more expensive fibre network, with faster speeds and better services on offer, unless there is a gradual migration of customers on to the new technology.

Though she says there’s still “pressure to invest” in new networks, copper lines’ life is increasing as new technologies allow operators to improve the broadband speeds and services available to customers at prices cheaper than fibre.

IDC forecasts New Zealand’s telco sector will grow 1.4% over a five-year period ending December 2014, well into the government’s proposed roll-out.

“It looks unsustainable unless there’s a change in overall growth,” she said.

Last month, Telecom laid its cards on the table, putting forward a possible de-merger to structurally separate its network operations in what would create two listed companies owned by the shareholders.

That would allow it to participate in the government’s scheme, which plans to partner with companies to speed up the roll-out of fibre to the home - the final link connecting households to the main telecommunications exchange.

Though the proposal was met with a negative outlook by rating agency Standard & Poor’s, a rival rating agency, Moody’s, said the proposal could have long-term benefits for the country’s biggest phone company by removing onerous regulatory burdens placed on it by the previous government.

Telecom chief executive Paul Reynolds says the capital expenditure requirements of its obligations agreed with the last government have tilted the playing field, and it would have to have much of these costs removed if it was to participate in the government’s plan.

Businesswire.co.nz

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