Key Points:

Telecom says its copper wire network will suffer a slow deterioration, unless the Commerce Commission raises the prices it is planning to let the telco charge its competitors for access to its network.

Commenting on the Commerce Commission's draft ruling setting the price other telcos will pay to access its network - known as local loop unbundling - Telecom said it would not earn enough to cover costs and future investment.

The commission this month put the price of accessing the local loop - Telecom's copper network running between local exchanges and homes and businesses - at $16.49 a customer a month for urban areas and $32.20 for rural areas.

However, Telecom estimates the cost of maintaining the network to deliver local loop unbundling at $30.31 a line.

"Unbundled copper local loop prices at the proposed level will result in the gradual degradation of the quality of the copper network," Telecom said.

"This will not become significantly apparent for a few years, but will nevertheless occur."

Telecom said low local loop pricing and increased service costs would result in a decrease in network investment compared with current forecasts.

"[This] will be disproportionately felt in rural areas and completely cut across loop shortening (fibre to the node and fibre to the premises) and potentially investments by others in alternative technology."

Telecom said when its network was split into a separate division under the Government's proposed operational separation plan, local loop unbundling would provide 90 per cent of its revenue.

"That revenue is all then that is available for ANS operating expenditure, maintenance and investment," the company said.

Moves to regulate Telecom's phone network is part of a package of Government reforms to the telecommunications industry aimed at providing faster and cheaper broadband access.

It includes Government plans to split Telecom into three separate business units - retail, wholesale and network divisions.

Telecom was also critical of the decision to charge different prices for urban and rural line access, saying it would be a step towards a digital divide, with telcos focusing on urban customers to the detriment of those in rural areas.

It is a view supported by lines company Vector, which through its wholly-owned subsidiary Vector Communications, owns high-speed fibre networks in Auckland and Wellington.

Vector said it was "well placed" to invest in new network infrastructure.

However, it said it was at present considering the regulatory environment before making any decisions regarding investments.

The lines company said the difference between the proposed two-tier pricing and an average price across the network would be enough to restrict investment in fibre to urban areas with greater customer numbers.

However, Telecom and Vector's views do not have widespread industry support which is broadly in agreement with the Commerce Commission's plan.

Telecom's share price closed steady yesterday at $4.21.

What Telecom says

* Revenue gained by opening up the copper network would fall short of what is needed for future investment.

* A two-tier pricing model - at $16.49 a customer a month for urban areas and $32.20 for rural areas - would create a digital divide.

* The current proposal could not be implemented without incurring "significant and unnecessary cost".

Customers to get awesome performance

Orcon chief executive Scott Bartlett got a glimpse of the future yesterday.

After connecting his home phone and internet to the company's equipment at the Ponsonby exchange, Bartlett said he was getting internet downloads at 18Mbits per second - four times faster than currently available.

"It's really, really awesome," he said.

Bartlett is one of 12 Orcon employees connected to the Ponsonby phone exchange to test local loop unbundling - the ability for Telecom's competitors to plug their own equipment directly into the copper phone network to provide customers with broadband.

The slowest speeds have been 10Mbits/sec experienced at the house of the company's chief technology officer.

Bartlett watched a high definition video trailer for the latest Hollywood blockbuster, saying "It blew my mind how clear it was".

Music downloads took 1.3 seconds versus up to two minutes, he said.

"The biggest advantage in the future with local loop unbundling is that it actually for us introduces new revenue streams and new products and they're all around video," said Bartlett.

The company already has a contract for a video on demand service.

"It's been years working towards this and all of a sudden it's real," said Bartlett. "We've actually got real customers on the network getting awesome performance."

Ihug is also linking test customers to the exchange.