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Telecom warns Kiwi Share 'unrealistic'

By Rob Hosking

Friday 27th June 2003

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The Commerce Commission today clangs the bell on the latest round in the telecommunications regulatory punch-up.

Telecommunications commissioner Douglas Webb will release his draft decision on how much the Kiwi Share costs Telecom.

Telecom yesterday issued a warning about the likely direction of that decision. The commissioner has proposed a 6% after tax weighted average cost of capital as a guide to what Telecom should get for its provision of the Kiwi Share.

This service, set up when Telecom was privatised, is now also known as the telecommunications service obligation (TSO) and is the guarantee of telecommunications access to every New Zealander. The model, Telecom general manager of government and industry relations Bruce Parkes said, was unrealistic.

"The only trouble is it is nothing like the sort of return that a commercial enterprise would require to induce it to invest in a business with the risk profile of the TSO business."

In a speech to the annual Conferenz Telecommunications Summit, Mr Parkes was broadly positive about most of the decisions Mr Webb has made so far but said the commissioner needed to focus on ensuring the conditions were right for investors to put money into New Zealand telecommunications.

"The commission needs to sit in the shoes of the investor and answer the question, 'I can spend my capital in any number of markets and in any number of countries ­ what will induce me to invest capital in the TSO business in New Zealand?' Answering this question in the real world would, I suggest, lead to a much larger number than 6%."

Mr Parkes noted that Federated Farmers ­ which has been critical of Telecom in the past ­ had told the commissioner that if it did not set a price that fairly compensated Telecom, rural areas would not get the investment needed in their telecommunications access.

"Telecom is not saying there that we will walk away from our TSO customers ... [but] in the long term that capital will drift away. The effects won't be seen in a year or even two but in the long run ­ as we have seen in other infrastructure industries ­ problems will emerge."

The second major decision from the commission ­ due later this year ­ is on the vexed question of "unbundling the local loop" ­ requiring Telecom to open up its local networks to competitors.

The need for that option ­ if it were ever present ­ was past, Mr Parkes said.

"It was a policy initiative dreamt up in the 1990s ... a response to a view that infrastructure competition was never going to happen or at least going to happen within a time frame that would prove regulators were doing their job," he said.

However, local networks were no longer a "rock-solid monopoly," he said. Wireless competition from other networks such as BCL and Walker Wireless, as well as the government's Project Probe in the regions, mean any notion of unbundling is now obsolete.

"In Southland, Walker Wireless will be commencing deployment in a matter of months a competitively priced voice and data network that will cover 93% of the population."

Similar projects are under way in Northland and the Wairarapa.

"Now if this can happen in Tuatapere, Eketahuna and Kaitaia then there is no reason why it can't happen elsewhere."

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