Richard Inder: An exercise in mutual suspicion

Telecom next week faces its day of reckoning.

But Parliament's finance and expenditure committee, sitting to hear submissions on proposed laws to open the national communications network to all comers, will not fill New Zealand's largest listed company with confidence.

Telecom will certainly regard some committee members, such as Act's Rodney Hide and National's John Key, as friends. But it will rightly regard others - such as Labour's Mark Gosche and the Maori Party's Hone Harawira - with suspicion.

It will not expect agreement from the former. But at least Key, a former banker, and Hide, a former economics academic, are at ease with the gritty economic issues at stake in the controversial Telecommunications Amendment Bill.

Telecom knows the politicians' failure to understand these matters - ranging from arcane tenets of corporate governance through to investment incentives and judgments about the future of telecommunications technology - potentially pose the greatest threat to its profits, to shareholders' and even New Zealand's interests.

Why? Because one option before the committee - to provide for the split of Telecom into networks and retail businesses - is seductive in its apparent simplicity. And, in its most severe form, is working reasonably effectively in the electricity industry.

Such separation is by no means simple. And the distinction between retailer and distributor in the electricity industry is more obvious than it is in the telecommunications industry.

Technology has a much greater bearing on the range of services telecommunications companies offer.

Telecom cannot deliver high-speed internet without a piece of kit attached to the copper wire and, therefore, it is at least debatable who should own and manage that piece of kit.

These arguments are not sufficient to dismiss structural separation as a viable alternative. Indeed, it may well be the best option. But, the arguments illustrate the need for a principled debate.

This is not something Telecom can expect from Parliament, especially since its ability to bring reason and principle to the table has been severely compromised.

A cursory glance at Telecom's submission to the select committee illustrates the problem.

One of its main themes is the call for politicians to trust it. And specifically to trust its claim that separation along the line of Britain's BT is not in the best interests of New Zealand.

Take these two examples:

"BT has estimated the one-off capital cost of the transition to its new operating model to be £70 million [$210 million], and we expect a similar magnitude of cost were we to transplant the exact same model to our business ..."

Really? How much of BT's estimate is related to its vastly greater scale?

"We spend billions, not millions. The network assets have a long-term life and to achieve scale economies involve commitments to large fixed costs. We can afford to make these investments because at present our retail arm is an anchor customer."

Really? Might not such pressures make Telecom more responsive to the market?

Telecom goes on to talk about technological difficulties implementing a BT-like separation; the superiority of its own proposal; the need for greater flexibility in pricing and contracts and for tougher scrutiny of the regulator.

It backs up these arguments by pleading circumstances special to New Zealand, the dangers of bureaucracy, the threats to customer service and the desirability of industry solutions rather than regulator imposed.

Telecom's ripostes are not without merit.

The Commerce Commission, now only subject to a judicial review of the processes it uses to reach its decisions, should be subject to reviews of substance.

Giving businesses the flexibility to reach commercial arrangement with the monopoly provider is desirable.

Innovation is stifled by bureaucracy. And it would be wrong to impose an off-the-shelf solution from the UK to New Zealand. After all, giving women the vote is a local innovation.

But they are the same arguments Telecom has used since it was privatised to maintain its grip on the local loop.

And, in some measure, they have played a key role in keeping New Zealand at the bottom of the OECD rankings of access to telecommunications services.

Telecom insists it has changed. It asks for time to be judged against its undertakings to the Government.

But even if Telecom did have a history of backing up words with action, it would still be difficult to counter public enthusiasm for the move.

Saddled with its woeful past, Telecom now, more than ever, sounds like a recidivist.

Its fate now rests in others' hands.