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Telecom split still leaves monopoly

Wednesday 15th September 2010

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Telecom's proposal to carve out its network business in a bid to tap the government's ultra-fast broadband fund will still leave a network monopoly, according to the Ministry of Economic Development.  

Demerging Chorus from Telecom would "represent a significant change" to the industry, but wouldn't resolve challenges around competition in the network space, according to an MED discussion document on the regulatory implications of structural separation released today.

It also said regulatory consistency across fibre and copper is important, and government policy should be used to promote competition through opening access, while avoiding over-regulating immature industries.

"Structural separation would not affect the underlying problem of limited competition at the network level, which confers market power on the network owner," the document said.

"Regulation is likely to remain necessary to avoid monopoly pricing, unless competition from alternative networks emerge."

Last week, Telecom's bid to win the government's $1.35 billion UFB initiative and $300 million rural broadband initiative took a dent after Crown Fibre Holdings put three regional bids in the box seat to win 18% of the provincial and urban areas. The phone company's shares were unchanged at $2.06 in trading today.

Communications Minister Steven Joyce said the government is seeking submissions on the implications of a structural split to Telecom. The regulatory regime for copper services, Telecom's operational separation undertakings and the Telecommunications Service Obligations were flagged as areas that will be impacted by the split.

The MED said structural separation would lower barriers to entry at a retail level and there was scope to remove regulatory provisions dealing with the relationship between wholesale and retail levels.

Still, it had concerns about the "residual vertical integration between the network and the wholesale layers of the business, so some incentives to discriminate against competitors would likely remain".

Though Telecom has been coy on the exact make-up of the split, the ministry expects the demerged Chorus2 to take the access network, including active electronics, most exchanges and regional backhaul links.

ServiceTel, Telecom's remaining businesses, will likely hold the public switched telephone networks, which are the ageing copper lines, the mobile network and the national backhaul links.

Telecom is reviewing the document is expected to make a response this afternoon, a spokesman said.

Submissions are open until October 15.

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