Christopher Niesche: Telecom and rivals vie for advantage

If anything, the Government's announcement in May that it would force Telecom to open its network to competitors has increased the lobbying and the posturing by Telecom and its competitors.

Deciding to unbundle the local loop was the easy part. Doing it in a way that achieves the aim of faster, cheaper broadband for more New Zealanders will be much more difficult.

Last week we saw Telecom's competitors continue with complaints they won't be able to make a profit because they have to pay Telecom too much for the broadband services they resell. Then, at Telecom's AGM on Thursday, the company reiterated its warning it would cut back on investment in its phone network unless it could get a fair price.

Unsurprisingly, both sides are posturing to get the best deal they can for themselves. But both sides also make fair points and that's the difficulty for regulators.

Internet service providers who compete with Telecom have to be able to buy broadband from Telecom at reasonable prices so they can resell it at a profit. Likewise, when Telecom provides ISPs with access to its copper wire network next year or the year after, the prices will have to be low enough to give the ISPs the incentive to invest in their own equipment and take up the opportunities offered by local loop unbundling.

If wholesale broadband and local loop access prices are too high, there won't be the competition in the market to drive down prices and improve services. And ISPs won't install their own equipment on Telecom's network to improve New Zealand's broadband offering.

The ISPs are, of course, playing a game. They're using the negative sentiment around Telecom and the fact that the Government has lost patience with the company (both problems of Telecom's own making) to lobby for the lowest wholesale and local loop prices they can get.

Likewise Telecom is playing a game when it threatens to scale back investment in its new super fast ADSL2+ network next year. Chairman Wayne Boyd told the AGM Telecom wants certainty and "a fair and workable price for services such as unbundled local loops".

But beyond the game-playing, there is a point at which Telecom would decide it's not worthwhile investing heavily in new infrastructure. This could mean that rather than catch up with the rest of the world in broadband, New Zealand could slip further and further beind.

Where that point lies is anybody's guess, but allowing more detailed examination of Telecom's accounts - which the Government has mandated but which Telecom is resisting - would help determine that.

The Government is awake to the danger that Telecom will scale back investing. "Local loop prices will be set to allow Telecom to earn an acceptable return on its investment and Telecom will still have an incentive to invest so it can provide advanced services to its customers and grow revenues," according to the telecommunications stocktake Cabinet paper from May.

The Commerce Commission has the unenviable task of setting those prices and will be deluged with information.

Each side will have armies of economists, technicians and analysts to argue its case and they'll be backed up by truckloads of independent reports and overseas studies.

It will be an arduous process. Two years after local loop unbundling in Australia, Telstra is still arguing with regulators - and competitors' taking advantage of local loop unbundling is only just starting to gather steam.

Its likely to be similar in New Zealand.

Somehow the commission will have to sift through all the self-interested information and arrive at the right price to achieve the Government's aims of faster, cheaper and more prolific broadband.

If it gets it wrong the opportunity presented by the telecommunications reforms will be lost.