Telecom’s Separation Plan Approved

David Cunliffe has announced this morning that he has signed off on Telecom’s separation plan.  Telecom will split (but still legally one group) into a network access division (known as Chorus), a wholesale division, and a retail division.

Chorus will allow ISPs to place their own equipment in its exchanges and cabinets.  They won’t get to do this for free – but all telcos and ISPs will pay the same charges. Chorus will be laying out fibe to the node, and may one day be a major player in fibre to the home.

Telecom Wholesale will provide services to ISPs which can’t afford to purchase their own equipment.  This is how almost all DSL broadband products are currently offered, and will remain for some time the most common offering.

Telecom Retail will sell their own products and services to residential and business customers.

The separation has been about breaking up a vertically integrated monopoly, and getting the right incentives in place. The previous structure was the equivalent of having Air New Zealand own the major NZ airports, and able to unilaterally decide what other airlines were allowed in, how much they would charge, what routes they were allowed on, what times they could fly etc. Or another analogy would be having Ford own most of the roads, and able to decide what other car brands are allowed on them.

This is why Parliament voted 119-2 to support separation, and why David Cunliffe has such widespread support from both consumers and industry for his actions. Kudos should go to Telecom and new CEO Paul Reynolds for not doing a Telstra in Australia and engaging in a guerilla war with the Government, but working hard to be successful in the new environment.

And while there is a long way to go, there have already been benefits to businesses and consumers.  A couple of years ago the top business broadband package was an outrageous $2,500 a month. Now it is around 10% of that. We have moved up two places in the OECD uptake placings, ISPs are now offering naked DSL, ADSL2+ though their own equipment, speeds are faster and prices cheaper.

Monopolies are inevitable in various areas.  I even sit on the board of a company with a natural monopoly of sorts. But the key is to keep the monopoly as small and focused as possible, and not to allow it to spread to all layers of an industry through vertical integration.