Paul Budde: To Separate Or Not To Separate?

By now we should be seeing how serious Telecom is about its reforms.

I have been a voice in the wilderness in my defence of Teresa over the last few months, and it is good to see that she will be in charge of the first, and the most important, part of the reforms. Her reputation is well and truly on the line, and her business future will be decided over the next 12 months.

I hear, loud and clear, the voices of skepticism about Telecom's initial moves, and I accept the fact that very few incumbents have shown leadership in such a position. However, there are a few, so it can be done. BT, KPN, Telia and, to a certain extent, France Telecom, NTT and SK Telecom can be given as examples.

And it is also good to look at Australia and say: 'the ACCC is very much in favour of rigorous operational separation, so let's follow them'.

In all these examples the reality is that if the telco is unwilling none of these reforms will take place in a timely fashion. In the above countries either the regulator or the government is very directly involved in instigating these reforms - a very hands-on approach - but I doubt that the New Zealand government or the Commerce Commission has the strategic telecoms skills, or the funds, to do that in New Zealand.

This being the case, I maintain my rather unusual position and put my weight behind Telecom to get the reforms through. My only measure is results and, as I have mentioned before, we should now quickly see some really good wholesale results.

But I must say that if we don't get these positive results within the next 2 to 3 months I will join the naysayers in New Zealand and speak out against Telecom and its CEO.

For the time being by far our best option is to get Telecom to deliver a plan that provides the same outcomes as the regulated operational separation of BT. Nothing more, nothing less. Telecom will have to address all those issues, including the operational issues regarding the network, not just the wholesale business.

Telecom also will have to spell out what the competition issues will be under an NGN/FttN (fibre-to-the-node) network. This network also needs to be made available on a basis that is identical to the outcomes of a regulated separation.

By taking this stand we give Telecom an opportunity to establish how it will adapt itself to this new structure.

Telecom's plans need to be made public and to be scrutinised on exactly those points. However the government and the industry must show sufficient flexibility to be able to measure this on outcomes rather than on processes.

Teresa has now been given board support to implement her plan and the one or two hawks within her team either have to conform or leave. With this board approval she must now come up with some very quick wins if she is to stem the tide of industry revolt. It appears to me that the government is more than ready to follow up on their promises. However, if it were to opt for accounting separation that would send out absolutely the wrong message. As in all the other countries mentioned above, wielding the stick is an absolute necessity, and accounting separation is a feather, not a stick.

Under the often misused term 'shareholders value' an accounting separation plan could force Telecom to not deliver a new structure that is equal to operational separation, and Telecom could argue that if it is not government policy then it is not in the interests of the shareholders to do so.

Accounting separation will not lead to any improvement in the current wholesale and competition environments, so it would be totally useless for the government to go that way. Telecom has indicated it wishes to go further, and that is where the government should set the benchmark. They also mentioned structural separation, but that is not achievable at the moment, so let's not waste too much time even considering it. Operational separation is the benchmark - nothing more and nothing less.

What the government should do at this stage is not back down. It should stay firm, but, by wielding the stick, get Telecom to implement the reforms that we all want. It is up to the government to do this. After that, either voluntarily or under duress, Telecom will have to follow.

PAUL BUDDE Communication Pty Ltd,
http://www.budde.com.au
BuddeComm operates the largest, continually updated, telecommunications research service on the Net

ENDS

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