Key Points:

Just when shareholders thought Telecom had enough on its plate, the former monopoly faces a challenge to its wholesale market.

Telecom has received another blow with arch-rival Vodafone moving swiftly from its attack on retail fixed line services into wholesale.

Vodafone said yesterday it had signed a deal with internet service provider and phone company Slingshot - a deal that will eat into Telecom's wholesale revenue.

The Vodafone-Slingshot deal - which will affect Slingshot offers to consumers from November - marks a new stage in the breakdown of Telecom's monopoly on phone services.

The deal, which will expand as Vodafone pushes its fixed lines services from unbundled exchanges out of Auckland, occurs three months after Vodafone launched its "Red Network".

And the company - whose big push coincides with major upheavals at Telecom - says it will be wholesaling to other customers including those who are now buying capacity off Telecom.

The change means Telecom competitors, who had a choice of reselling Telecom services or spending millions of dollars installing new equipment in Telecom exchanges, will now have a third option. They will be able to pay for unbundled capacity at exchanges and avoid dealing with Telecom altogether.

Other industry players were surprised Vodafone had moved so swiftly into the wholesale market. But they said it made sense recovering some of its costs installing its equipment at exchanges.

Telecom wholesale spokesman Steve Pettigrew said Telecom had been expecting the move as part of the new environment after regulation and would be competing at both a retail and wholesale level.

Slingshot says it will be able to offer higher-speed broadband and market different deals to consumers. It will continue to have a wholesale arrangement for some services. It plans to expand its Vodafone arrangement when it moves beyond 40 Auckland exchanges.

Pettigrew would not discuss how much revenue had been lost by the Vodafone-Slingshot deal, or how Telecom would be able to fight back.

Telstra Clear also recently announced it would be installing equipment at more than 70 unbundled Telecom exchanges.

TelstraClear spokesman Chris Mirams said there were no plans to follow Vodafone's lead and wholesale access to its unbundled services.

Slingshot has been testing the service in the past couple of months with a view to launching a commercial fixed-line broadband service by November this year.

Slingshot general manager Mark Callander said the Vodafone deal would give the market a good shake-up. It would enable Slingshot to develop new voice and broadband solutions that would challenge traditional models and provide consumers with more choice.

Vodafone plans to unbundle 40 Auckland exchanges by year's end and then look at other main centres.

TELCO WARS

* New regulations made Telecom open up its telephone exchanges to competitors - the unbundling of the local loop.
* It meant Telecom competitors could offer their own retail services rather than just re-selling Telecom capacity.
* In June Vodafone began "The Red Network", its retail fixed line with equipment at unbundled Auckland exchanges.
* Vodafone has moved retail competition into the wholesale market.
* It will wholesale its Red Network surplus capacity - "offering faster speeds" - starting with Slingshot.
* It will compete with the Telecom retail and wholesale arms.