Hard News by Russell Brown

It's all on - eventually

Unbundling ain't the half of yesterday's unexpected announcement on telecommunications regulation. The real curveball - one that will force Telecom to get a new business model - is a mandate for naked DSL. That is, a line without a dial tone, leaving consumers free to use their line only for broadband data, and choose their own voice solution. That's huge.

That solution might be a voice-over-IP product on the data line (and Ihug already has one of those sitting around) - or the kind of fixed-mobile substitution lately being championed by Vodafone (and now likely to be pursued with great vigour by Telecom Mobile, where they won't be at all unhappy with the news).

The upshot: a shift to a more consumer-centric market with better, more flexible services, and away from easy and guaranteed fixed-line revenue for the incumbent.

The pro-reform camp got just about everything it wanted - the exception being an enforced wholesale-retail separation of Telecom, and the incumbent is on notice that that's not out of the question either.

Telecom's share price nosedived seven per cent on the Australian market after the news broke yesterday, and it will take a drubbing here today. This was inevitable: Telecom has been priced on its ability to derive monopoly rents (and David Farrar has a startling example of that this morning).

But that doesn't mean it's all over for the big guy. What it means is that Telecom won't be able to collect monopoly rents while it forces the rest of the market to walk at the pace of its choosing. There will be new investment, new products and services and probably new entrants to the market. Eventually.

This legislation won't be in place until early next year. From there, the international experience is that unbundling takes time to unfold. In the interim, there will be much scope for opponents of reform to declare that it's not working - and you can count on them doing so. Computerworld has a timeline for the various announcements in the package. The first benefit apparent will be a change to existing UBS arrangements requiring unconstrained DSL to be made available - meaning you'll never have to suffer 128k upstream again.

But TelstraClear has already said the announcement has changed the investment environment in New Zealand, and it's safe to assume that it will be placing gear in exchanges as soon as it is able. Slightshot, Ihug and Orcon will also be in, and I wouldn't be too surprised to see a new entrant. The timing's not great for Ihug - although it has been performing to expectations in New Zealand, its Australian sibling iiNet has had its shares suspended for the past two weeks and has been obliged to issue a profit warning - but it will simply have to find the capital.

What the newly-enabled competitors need to be careful about is proving the critics right and all piling into a handful of lucrative urban exchanges. Without colluding in any anti-competitive way, they will probably need to talk to each other.

While Telecom's top brass are obliged to be outraged at the news, the response among the ranks at the company is rather different. There is, naturally, some relief that the cards are finally on the table. But the reaction was coloured, as one person put it to me, with "a frisson of excitement": they know that the market will become more dynamic and more interesting. And I'm sure they're also keenly looking forward to no longer being the ultimate destination for all customer complaints. In a year's time, Mr Angry of Mt Eden may well be complaining to a new company.

I would also expect this news to act as an incentive for Telecom to bring forward its never-never plans for cable to the home. (The potential downside being that the company leaves its copper to rot.)

As everyone is doubtless aware, the government did not intend to make this announcement yesterday, only hours after Cabinet committee sign off. It was meant to be the trump card in this month's Budget. But its hand was forced by the leaking of the paper to Telecom. This is troubling, but ironically, the timing was worse for Telecom than anyone else, because both Theresa Gattung and PR chief John Goulter were in Australia.

So I was cooking dinner last night (the new Asia Home Gourmet sauces in a jar are really very good) and enjoying a glass of wine (Delegats 2005 Hawkes Bay Chardonnay - an improbably cheap $9.95 at Woolworths this week) when Close Up called to ask if I could come in urgently and talk about the announcement live on air.

Slightly less than 45 minutes later, I was sitting at a desk with Annette Presley and Ernie Newman being interviewed by Susan Wood. (I subsequently discovered that Close Up had spurned a David Cunliffe interview on learning that Campbell Live had grabbed him for the top-of-the bulletin slot, so we were the Plan B.) The video is here. I thought it came off rather well in the end. Given the short notice, it was very helpful to have already explored the arguments in A long post on telecommunications .

Maurice Williamson was, to the potential embarrassment of his party, slamming the decision on Morning Report today. And he even said this: "The reason we have low broadband is because we're a poor country." That is - how can I best put this? - complete crap. The alleged relationship between GDP and broadband penetration has been thoroughly debunked since the Business Roundtable's Rob McLeod plucked it out of thin air in a column earlier this year. Williamson needs a new argument before National gets a new spokesman.

And as a final perspective, Throw Theresa! is a little bit mean but very clever indeed …

PS: Apologies for the lack of availability of Public Address this morning - we've had server problems in the US and our server guy stuck on a plane back from Wellington, having been diverted there en route from Sydney last night because of fog in Auckland. Great day for that to happen …