New-era broadband faster but no cheaper

By Jenny Keown

Opening Telecom's network to competitors will result in faster internet and more competition from the middle of this year, but standalone broadband prices are unlikely to drop.

Telecom competitors Callplus, ihug and Orcon say they are aiming to install equipment in Telecom's exchanges mid-year, enabling them to have their own broadband services.

The Government's Telecommunications Amendment Act, passed last year, allows for the creation of three broadband services - unconstrained wholesale access, separation of phone and internet services or "naked DSL", and the opening of Telecom's network to rivals' equipment.

Competitors will be able to place equipment on Telecom's network and provide their own broadband line and bundled services such as tolls, video services and voice-over-internet.

The legislation allows the Government to make Telecom split itself into three business units - network access, wholesaling and retailing.

Ihug regulatory manager David Diprose said rivals' broadband technology could give faster speeds than Telecom's unconstrained package of 8 megabits per second.

The company planned to install its ADSL 2+ technology in Telecom's exchange and deliver a maximum upload speed of 24 megabits per second.

But although customers can expect creative packages and faster speeds, standalone broadband prices are not expected to drop.

Diprose said broadband providers lost money, so consumers could not expect pricing to improve.

Telecom industry relations head Chris Dyhrberg agrees.

"I suspect there will not be a whole lot of cheap prices, but a lot of different options for people who want high capacity, high speed."

Despite this, Telecom's rivals believe bundled packages - giving toll calls and video services as well as broadband - will drop in price to entice consumers to quit Telecom.

Callplus has not said what technology it will use, but chief executive Martin Wylie predicts cheaper bundled products.

Orcon regulatory manager Scott Bartlett said his company planned to install VDSL 2 equipment capable of a maximum upload speed of 100 megabits per second, and give packages of broadband, video services, internet television and a phone line for $50 to $60 a month.

"Our feeling is that the local loop unbundling cost for the line will be between $10 and $15, which is consistent with other people's thinking," he said.

Orcon's network will cover Auckland, Christchurch, Wellington, Hastings, Napier, Tauranga, Hamilton, Dunedin, Nelson and New Plymouth.

Unbundling would dramatically change the landscape, Bartlett said.

Although Parliament has passed the necessary legislation, some obstacles remain to be overcome before unbundling takes effect.

Dyhrberg, who represents Telecom's wholesale division, said the company was "cagey" about saying how long it would take for it to be ready for competitors to install equipment in its exchanges.

The Telecommunication Carriers Forum had completed drawing up the first phase of technical codes for local loop unbundling but an enormous amount of detail still needed to be worked through to understand how to deliver it.

Despite Telecom's equivocation, the Government is clear about the time-frame for Telecom's split, which includes unbundling.

Communications minister David Cunliffe, who is in charge of the separation, said he was aiming for it to be completed by the middle of the year.

Cunliffe will draw up a detailed draft determination on what he requires from Telecom.

The determination will then go to the Cabinet for approval and the final determination is expected to be issued in April.

Telecom will then have four weeks to prepare draft separation undertakings, in consultation with the minister.

Analysts were reluctant to predict how much market share Telecom could lose as a result of the reforms until the detail of the separation and unbundling was worked out.

But when the Government announced in May last year that it would force the company to open its network to competitors, its share price fell as low as $4.16 from $5.55 before the announcement. Yesterday, the shares were at $5.02 - an eight-month high.

Meanwhile, observers have raised concern about the performance of the local internet as the industry marches towards reform.

While faster speeds and creative broadband packages sound great in theory, Telecom, Callplus and ihug last year had failures of their internet services.

Ihug's Diprose said these service failures would not happen on such a large scale under the new system because unbundling would give competitors better control over the quality of the broadband service.

Most of the service problems last year were the part of Telecom's network shared by all users, which was prone to high congestion at peak times, said Diprose.

Local loop unbundling would enable internet companies to set up their networks "the way they think people want".

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