KEY POINTS:
Telecommunications Users Association head Ernie Newman is backing the Government's plan to split Telecom after seeing how well similar action is working in Britain.
After attending an international telecommunications user group meeting in London, Newman said: "The message I got clearly is the three-way split is working well."
Newman said everywhere he went in London people were handing out pamphlets advertising internet deals competing on speeds and price.
Britain introduced local loop unbundling - opening phone networks to competitors - in 2000.
However, British Telecom's unfriendly behaviour as a wholesaler meant slow progress on unbundling local networks for competitors, Newman said.
In 2005, the company agreed with British regulator Ofcom to undergo voluntary regulation, which saw it create an operationally separate network unit, Openreach, in 2006.
Newman said it took six years for 1 million local lines to be unbundled. It then took only six months to pass the 2 million mark in April.
"I think that shows that it's the combination of local loop unbundling and separation that has set the market alight," he said.
"Telecommunication is one industry where you actually need to take positive legislative action in order to create the environment under which competition can emerge to offset the natural monopoly characteristics of the network."
The Government is advocating operational separation for Telecom but Telecom prefers structural separation - the hiving off of its network assets into a separate company.
Newman said operational separation had worked well for BT because it had a chief executive, Ben Verwaayen, who saw it as a sensible business strategy.
Verwaayen joined BT in 2002 at a time when a disastrous expansion strategy tripled debt and halved the share price. The company's latest annual results showed profit before taxation and specific items was up 15 per cent on last year.
"It [separation] has been a complex process to implement and they're not absolutely completely there, even now, but they are a long way down the track," said Newman.
The separation has not slowed down work on the company's "21st Century" network - a new IP-based network to replace the old network technology.
"The three-way split does not seem to have inhibited in the slightest way British Telecom's commitment to that 21st Century network."
Newman said investment in the next generation network should not be allowed to cloud the issue of getting New Zealand's legacy position into order.
Telecom has said the Government's plan for operational separation would mean it could not afford network investment needed to meet the Government's digital strategy goal of having 5Mbps (megabits per second) broadband available to 90 per cent of the country by 2010.
"That argument doesn't stack up. There's no other industry that I'm aware of that takes the view that if you can't have a guaranteed monopoly you can't invest. It's the reverse - competition is what drives investment."
LOCKING HORNS
Government's plan
* Telecom will be split into wholesale, retail and network access units.
* The network access group should have its own brand and head office.
Telecom's plan
* It would have retail and wholesale operation units with light regulatory management.
* The network would be split off into a separate company that could be sold.