KEY POINTS:
British telco giant BT has thrown support behind the Government's plan to split Telecom, saying it will come closer to achieving true telecommunications competition than in any of the 170 countries BT operates in.
In feedback on proposals for the separation of Telecom into three units - retail,
wholesale and network - BT has countered many of Telecom's objections to the proposal.
BT has been held up as the market leader in the regulation of telco monopolies and is the basis for the Government's model. In 2005 the British phone company came to an agreement with the British regulator Ofcom to undergo voluntary regulation, which saw it create an operationally separate network unit, Openreach.
BT said regulation was "desirable" when a single player dominated the network and retail markets, especially given the high financial barriers to building a competing network.
It offered comment on the Government's model but said they were merely refinements "to an overall strategy we believe to be positive for fair competition, and New Zealand businesses and consumers". However, BT said it was not convinced Telecom's proposal for operationally separate retail and wholesale units, with a structurally separate network company, would lead to quicker delivery local loop unbundling and bitstream.
"Nor is it likely to provide greater incentives to invest," it said.
"While the Telecom proposal is interesting and has merit in parts, we can see no compelling reason, based on their stated concerns and objections ... for the MED OS [operational separation] proposals to not proceed."
The separation would force Telecom to open its network to rivals, bringing a greater range of products and services to consumers.
Telecom has also suggested splitting in three, but with a structurally separate network company and a desire for gradual reduction in the regulation of its retail and wholesale businesses.
BT said operational separation, similar to that proposed by the Government, had delivered improved competition and investment in Britain, contrary to Telecom's complaint it was "practically unworkable" and would not meet Government goals for greater competition and investment in the sector.
Even under continuing regulation BT said it planned to invest more than £10 billion ($27 billion) on a next-generation network.
BT said Telecom's suggestion that the Government plan for operation separation would reduce investment incentives was "puzzling" and the reverse of BT's experience in Britain.
"BT sees the undertakings it has given as enabling the regulator to focus regulation on promoting competition at the deepest feasible point in the network," said BT.
"We see this as supportive of both our investment in 21CN (BT's next generation IP-based network) and of competitive investment in the use of, for example, unbundled local loops."
BT said the comments by Telecom that the proposed regulatory regime would create low returns for high-risk investment was an issue independent of operational separation.
While BT accepted any regulated pricing must be set to cover any costs and risks, it said this was a process for the Commerce Commission and outside of the scope of business reorganisation.
"It is BT's view that the OS [operational separation] implementation detailed in the MED Consultation Document is by and large sound ... having the Netco as a separately owned entity is likely to give rise to some oversight regulation; however ... we would not think that the regulation of the wholesale unit remaining in the vertically integrated Telecom can be as lightly regulated as currently proposed."
It dismissed Telecom's view that its plan would be faster to implement than that proposed by the Government, saying most of the work would be to develop systems to provide equal access for wholesale customers - a process necessary whichever model was chosen.
The Government is considering feedback on both proposals and plans to release a draft separation plan in July. Telecom said it would not comment on individual submissions.
