TelstraClear throws in towel

TelstraClear is ratcheting back its ambitions for New Zealand and settling for being a niche player rather than a national competitor to Telecom.

"The concept that we were going to be a contender and a source of competition in every market in New Zealand is misleading," chief executive Allan Freeth said. "We're not here simply to be some type of competitive stalking horse or for anyone to suggest that competition is alive and well. We're here obviously to make money for our shareholders."

He said that meant no new fixed-line investment and the dropping of certain Telecom wholesale products - primarily line rentals and "smart" phone features - which TelstraClear resold in some areas.

Instead, the company will concentrate on maximising profit and gaining market share with products on its existing cable networks. The company offers phone, television and broadband over cable networks primarily in the central business districts of Wellington and Christchurch, but also in Auckland, Dunedin and 16 provincial regions.

The company will continue to resell Telecom products, but only in "targeted" high-density, high-profit areas.

A TelstraClear spokesman said existing line customers outside these areas would not be affected, but no new customers would be added.

The decision comes after a four-month review of the company's business and under the shadow of a similar review in progress at Australian parent Telstra.

Freeth said TelstraClear's paradigm shift was a "get-serious strategy ... but it's also a be-real strategy".

Although he believes the Government's attitude towards wholesale regulation had been changing for the better, the wholesale market in New Zealand was not conducive to proper competition and was "pretty green in terms of its maturity".

Sydney-based telecommunications analyst Paul Budde said TelstraClear's decision to become a niche market player rather than a national telco was proof of the failure of regulatory policy.

"It's a result of the Government's inability to create the right environment. This is a consequence of that policy ... it's definitely not good for New Zealand."

Communications Minister David Cunliffe could not be reached for comment last night.

Budde said the Government could not take all the blame and that Telstra knew what it was getting into.

"Telstra went into it with their eyes wide open. They knew the situation ... they took the risk to move into a highly protected market."

Budde also said TelstraClear's strategic shift reaffirmed the company was for sale. It did not make sense for Telstra to continue operating TelstraClear and chief executive Solomon Trujillo "is clearly a guy who is looking for sense".

"I can't see a long-term interest from Telstra for TelstraClear."

Freeth said TelstraClear was still hoping for a favourable decision from the Commerce Commission on unbundled bitstream services.

The company has resisted wholesaling Telecom's internet offerings, but would if it offers a better margin.

He also said that mobile phone offerings were part of the company's growth strategy and that a new, third network was not out of the question. TelstraClear resells Vodafone services but there was no "hesitation or doubt" that it must find a better arrangement.

A Telecom spokesman had no comment, but Budde said it was good news for the company.

"It was a small way to keep Telecom a little bit honest," he said. "It can now really sit back and relax."

Another analyst said Telecom's bottom line would take a hit from TelstraClear's decision, as it made up about 80 per cent of Telecom's wholesale line rental revenue.