KEY POINTS:
Telecom chairman Wayne Boyd has finally faced reality by suggesting the telco's network should be sold to meet Government demands for increased competition.
Boyd's decision to opt for the free-market approach by flogging the network outright, or forming a partnership with industry and Government to own the copper
wires that connect 1.4 million lines to 1.7 million households, has been a long time coming.
It took Government threats to split the former state-owned monopoly into separate network, wholesale and retail operating units to get the telco to see reason.
Trouble is the Government may be too wedded to its own offensive strategy to see reason in return. But it should not dismiss Telecom's position out of hand.
It is going to take a considerable injection of cold hard cash to bring Telecom's network up to sufficient speed and capacity to underpin the broadband future.
Telecom will want to extract a substantial sum from Government - or industry competitors - for its network operations.
But it might make more sense for the network to be put into club ownership and run for the benefit of its consumers rather than continuing with absurdly over-priced telecom services.
The business imperative is obvious.
As the NZ Institute has pointed out, New Zealand's virtual supply chains do not compare favourably to many other countries.
With climate-change phobia threatening to cast a pall over some traditional export industries such as tourism and agriculture (if we're not smart), it is going to take a considerable chunk of investment in communications infrastructure to grow new "virtual industries".
Telecom needs to play its hand carefully now. Remember the spoof ad that spread like a virus on the internet last year after Theresa Gattung's ghastly admission the industry used "confusion as its chief marketing tool"?
Her top team jumped up and down when some bright spark hijacked one of Telecom's branding adverts to make clear his/her displeasure with the CEO's statement that "at some level, customers know we're not being straight up".
The "Telecon Parody" (easily accessed on the You Tube website) lampooned Telecom's pricing strategy by substituting for the puffy statements with a bunch of young children's comments such as: "I'm not going to take it any more"; "I've been ripped off"; "I've been well and truly shafted"; "This phone's costing us a fortune and I can't get access to the internet" - and so it went on, culminating in a stern voiceover suggesting the national telco's customers take their business elsewhere.
This week, the Commerce Commission confirmed this country has one of the most expensive telecoms markets in the OECD (Organisation for Economic Co-operation and Development).
The commission's first quarterly stocktake for the sector makes sober reading.
It also proves that Gattung was right on the nail when she indicated the telcos were ramping up returns all the while they bamboozled their customers.
New Zealand's overall ranking for residential fixed line charges has slipped to 25 out of the 30 countries.
But it's the specific telco ratings that are telling.
Telecom's "Anytime" plan - which covers fixed-line low users - ranked 26 out of 30.
Its mobile high-user plan, Flexitime, was the most expensive, costing 177 per cent of the OECD average.
The big player is not the only telco to face criticism. Mobile operator Vodafone had exploited its own low-end consumers by tying them to ridiculously long-service contracts and heavy early termination penalties, which offset the supposedly cheaper costs.
It's not just the kids who have reason to feel angry.
Coupled with the commission's report, the earlier internet study that shows this country is well behind the OECD pack when it comes to offering broadband speeds above 5 mbps (the average here is 2.7 mbps).
What emerges is questions over whether New Zealand will ever develop the chunky infrastructure which will support the type of "weightless" services we need to develop and offset our distance from major markets.
A New Zealand Institute report suggests such "weightless" exports - like communications services, construction services, royalties and licence fees, financial and insurance services, computer and information services and others - account for about 5 per cent of our total exports ($2.2 billion in 2006).
But New Zealand is not really on the page when it comes to exploiting this opportunity compared with other OECD nations.
The potential upside from establishing a major virtual business sector is difficult to calculate. But the opportunity cost of failing to tackle the issue is obvious.
There is only one high speed cable linking this country to the rest of the world and the cost of sending data to London from here is higher than from Australia, as the institute points out.
This is important as it plays into the decisions that companies make as to whether they base their operations here or shift overseas to be closer to markets.
These factors need to be kept upper mind by Telecom and the Government. Getting the network into club ownership - with some extra Government investment - would quicken the investment in the 21st century infrastructure.
The Government should then leave Telecom alone to run its marketing and service arms the way it sees fit.