Risks in excluding Telecom from UFB plan: analyst

Exclude Telecom from UFB initiative at your own peril: telecoms analyst

by Paul McBeth

June 9 (BusinessWire) – The government would exclude Telecom Corp. from its proposed roll-out of high-speed internet fibre at its own peril, according to a telecommunications analyst.

Rosalie Nelson, telecommunications research manager at IDC, 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 whoever wins the broadband tender.

That would ultimately 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, amid a gloomy international outlook for revenue growth in the telecommunications sector.

IDC forecasts New Zealand’s 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 Investors Service, 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 last Labour 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 accepted funding from Telecom to attend Rosalie Nelson's briefing in Auckland.

(BusinessWire) 17:17:23

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