Telecom's grip severed

The Government is to break open Telecom's monopoly on its lines to ensure better and cheaper internet and phone services.

In the biggest telecommunication shake-up since the privatisation of Telecom in 1990, the Cabinet yesterday approved a package to "unbundle the local loop", essentially forcing the company to open its network to competitors.

Other providers, such as TelstraClear, ihug and CallPlus, will now be able to install their own equipment and provide customers with a choice of internet speeds, prices and services.

Industry observers were jubilant over the results of the long-awaited telecommunications review but shares in Telecom in Australia immediately fell 7 per cent at the news, wiping $760 million off the company's value.

In New Zealand there were signs some investors may also have got wind of the change.

Telecom, the sharemarket's top stock, had been down all day, but in the last 20 minutes of trading it fell a further 6c, to end 10c down at $5.55.

Minister scrambles after plan leaked to Telecom

Communications Minister David Cunliffe was forced to make the announcement two weeks before the Budget, after the decision was leaked to Telecom.

After receiving legal advice, Mr Cunliffe made a rushed public announcement of the commercially sensitive plan as soon as the sharemarket closed at 5pm.

The move comes after mounting Government frustration at problems with New Zealand's low consumer uptake of broadband and the high cost and slow speeds of internet service.

New Zealand is ranked 22nd out of 30 OECD countries for broadband uptake. "This is not an acceptable or sustainable position for a small, smart country," Mr Cunliffe said.

"The Government sees this as critical national infrastructure, without which we will not be able to compete internationally."

Mr Cunliffe said the aim was to have New Zealand reach the average OECD rate of broadband uptake by 2010 and be in the top quarter of countries by 2015.

The move aims to impose competition on Telecom, the country's largest listed company, which at present controls 92 per cent of broadband connections.

It will now be required to offer unconstrained internet speeds, or double the download speeds now available.

Telephone and internet services separated

Consumers will be able to buy a broadband subscription over copper phone lines, without buying an associated phone service.

"It's great. It means progress. It means economic progress," said Telecommunications Users Association chief executive Ernie Newman.

"It means competition. A lot of the competitive players, like CallPlus, ihug, TelstraClear, suddenly have a business case to again invest in New Zealand."

An angry Telecom said it was hard to see how the action would deliver on the Government's aims for boosting broadband use and uptake.

The move would discourage investment in New Zealand, said Telecom's general manager of regulatory affairs, Bruce Parkes. "Today's package actually tells players to put away any major investment plans and rely on regulation instead."

Telecom and its chief executive, Theresa Gattung, have repeatedly warned that opening its network would hit the company's share price , affecting the sharemarket and the economy.

The Government has not been happy with the company's attempts so far to make broadband faster and more accessible.

Prime Minister Helen Clark said she felt like a "country cousin" after seeing a communications display in South Korea last year. In February she told Parliament that faster and cheaper internet was "a matter of urgency".

Deputy Prime Minister Michael Cullen has also been critical of Telecom: "Our superhighway seems to function with several lanes permanently closed with inexplicably high tolls and with flashing lights warning users to reduce speed."

Legislation enabling local loop unbundling and other measures is expected to be passed by the end of the year and consumers should start to see the effects next year.


The changes

* Telecom will have to open its network to competitors, allowing other internet service providers to compete.
* The company will no longer be able to set internet speeds, download limits and prices.
* Competition will stimulate companies to provide faster, cheaper broadband.
* The rental rate ISPs pay will be set by regulation.
* Law changes to be introduced this year.