KEY POINTS:
Last week this column looked at the painfully slow path to local loop unbundling, or opening Telecom's copper line network to competition.
Despite the Government committing to unbundling more than 13 months ago, it does not look like becoming a reality until the middle of next year at
the earliest, with some industry players picking 2009 as more likely.
What does the delay mean for business? First, for those telecommunications businesses itching to take advantage of unbundling the wait means missed opportunities, delayed investment strategies and the expenses associated with the frantic pre-unbundling market share "land grab" going on in parts of the industry.
This scramble to grab customers involves internet service providers (ISPs) battling to sign up subscribers by offering broadband at below-wholesale prices in the hope the new sign-ups will stick around post-unbundling when margins improve.
Meanwhile telcos and ISPs are deferring decisions on infrastructure investment until regulated prices have been set under the new unbundled environment.
TelstraClear is the full-service competitor best placed to mount an early attack on Telecom's market dominance after unbundling. But the local arm of Australia's biggest telco is holding off making a firm commitment to upping its investment in New Zealand until it knows the pricing details.
This equivocation is symptomatic of the across-the-board dithering on communication infrastructure investment, which ultimately affects all businesses and consumers. It restricts options and does nothing to help lift the country's miserably low broadband penetration rate.
But some smaller operators are growing their businesses despite - or possibly even because of - the local loop unbundling hiatus.
An example is Digital Island Communications, an Auckland telco service provider that has built up a base of around 3000 businesses customer since starting three years ago, despite not owning any communication infrastructure.
Digital Island says it has tapped into a growing market from businesses that want to simplify their telecommunications billing.
"We're dealing with a relatively complex product and for a lot of customers, their knowledge is low so they rely on their vendors to advise them," says Blair Stewart, the company's general manager and co-founder. "With local loop unbundling coming in there are a number of other key providers who will be making significant [infrastructure] investments ... Our view is that there is going to be more infrastructure coming into the market and we don't see we will have a need to invest in infrastructure," he says.
"As long as we've got a choice of wholesale providers that we can buy infrastructure off, and that choice enables us to deliver the products we want, we can't see ourselves changing our approach."
A timeframe submitted to the Commerce Commission by Telecom suggests unbundling will take effect around the middle of next year but Stewart expects it will be months, if not a year or two, later.
"The key is that expectations are managed, that people realise the size of the [unbundling] project, that benefits are going to be two or three years down the track," he says.
One concern is that the DSL technology used to deliver broadband internet over the copper loop is rapidly approaching its use-by date as a business tool. Some argue telcos should put their efforts into building faster fibre networks rather than wasting their efforts pushing for the unbundling of an antiquated copper infrastructure.
But Stewart says businesses see benefits in the familiarity and reliability of the existing network.
"The copper is there. It's the medium we're using at the moment and businesses are comfortable it works and the infrastructure they've got in place is in many cases taking advantage of that copper network," he says.
"So if what they want can be delivered at cheaper prices over the current medium then I think they'll stick with it to a lot greater extent than a lot of people expect."
Stewart expects unbundling to initially have a larger impact in the consumer market than the business market, because consumers are wowed by the promise of services such as internet video, television and telephony services at cheaper prices. Businesses are less price conscious but more concerned about a technology's reliability, he says.
This conservative approach to telecommunications means that despite the global proliferation of superior communication technologies, the copper loop looks set to remain a vital infrastructural asset for New Zealand businesses for some time yet.
