Government urged to get tough over Telecom

The Commerce Commission should be given the power to break Telecom into two separate companies if the company abuses its market dominance, major users of Telecom and its competitors have told Parliament.

Telecom's competitors said in submissions to the finance and expenditure select committee - which is examining the Government's new telecommunications legislation - that the Government needed to have more far-reaching powers to reform Telecom's business.

This year, the Government said it would force Telecom to open its network to other users - called unbundling the local loop - and it proposed separating Telecom into wholesale and retail operations.

In response to the new regime, Telecom said that it would enter into legally binding deals with the Government to implement an operational separation model based on that of British Telecom in Britain.

Telecom's competitors who use its fixed-line network to deploy broadband service are not convinced that under the proposed legislation the commission will have the power to enforce a strong operational model such as BT's.

They said the proposed legislation - in the Telecommunications Amendment Bill - needed to ensure Telecom did not exploit its ownership of the network to give it an unfair advantage.

The legislation did not provide "strong enough incentive to encourage far-reaching reform of Telecom's business, in the interests of competition", said Ernie Newman, chief executive of the Telecommunications User Association, which represents banks, contact centres and internet traders.

Telecom has not made its own submission public.

Ihug chairman David Diprose said structural separation might be required to create a competitive environment and the commission should be given the power to do this.

While operational separation had its shortcomings, Diprose said a robust operational separation model might be sufficient to ensure fair competition but only if the incumbent had enough motivation to agree to a fair model and there was the regulatory back stop of structural separation.

Under the proposed regulation, the maximum penalties the High Court could enforce for breach of accounting separation requirements is $1 million, $50,000 a day for a continuing breach, and other penalties of $300,000 and $10,000.

TUANZ said these penalties needed to be multiplied by five.

Bruce Sheppard, chairman of the New Zealand Shareholders Association, said a decision by the select committee to contemplate more extreme forms of operational separation would impact on shareholder returns. "An invasion of private property of this magnitude would likely impact on Telecom's future investment decisions and ... lead to a deterioration in the overall network like that we have seen in the electricity and rail networks."

Oral submissions on the bill will be heard in September.