Accounting split fails to satisfy critics

Ernie Newman

Telecom yesterday delivered more detail on how it will split the accounting practices of its wholesale and retail services but critics say they will keep pushing for a full structural separation of the two businesses.

Chief executive Theresa Gattung said the wholesale operation would be monitored by an independent oversight group, made up of two Telecom staff and three independents.

The group would be chaired by a non-executive director of Telecom and appointed by the board after consultation with stakeholders.

It would be legally bound to establish a fair playing field for competitors seeking access to Telecom's network, including an audit review of its performance and remuneration incentives to ensure that the wholesale division delivered on its promises.

Gattung said Telecom was trying to signal its commitment to certain key principles and "genuinely consulting" industry and stakeholders about what they would like to see in outcome and model.

But Telecom said that while its wholesale model had similarities to British Telecom, it did not support structural separation.

Telecommunications User Association of New Zealand chief executive Ernie Newman said Telecom's wholesale plans would not reduce pressure for enforced structural separation.

He said Telecom presented a persuasive argument for wanting to change its present regime.

"The proof of that will be in how the model is applied in the future and their success does depend on a cultural shift throughout the organisation."

BT voluntarily split its wholesale and retail operations in September last year under pressure from Ofcom, the British communications regulator, and has shown a modest rise in profits since then.

Telecom chief operating officer Mark Ratcliffe said wholesale revenue was expected to remain the same despite pricing cuts for the new regulated services.

"The level of revenue impact will be dependent on how Government sets pricing for wholesale services in 2007," he said.

Telecom wholesale general manager Matt Crockett said that at the end of the year Telecom would introduce new backhaul products.

In March, it expected to offer faster broadband - called ADSL 2+ and unbundled bitstream - and in April it would focus on number portability around fixed and mobile services.

"For 2007, our wholesale operations will be focused on consolidation and investment, and substantial delivery fronts.

"Our operational and delivery requirements are substantial."