TRUE BROADBAND NOW ON NZ HORIZON

By Dev Nadkarni

The telecommunications scene in New Zealand is set for major changes in the coming months. In a sudden move a week before the national budget proposals were unveiled in May, the minister for communications, David Cunliffe, announced at a hurriedly called media conference that Telecom, the nation’s main telephone and Internet service provider would have to unbundle its local loop network.

The announcement, which was meant to be the centerpiece of the budget had to be put out a week earlier because of a leak. A government messenger illegally passed on information about this major decision to his cycling mate, a Telecom employee. Telecom quickly notified the government that it was in possession of a document ahead of its public announcement. Following a high level enquiry that was swiftly conducted, the errant messenger faced the sack.

Cunliffe called the media conference at the end of the day after the bourses had closed for business. Yet, within the space of the next few days, Telecom had almost NZ$ 2 billion wiped off its market capitalization. As the share price tumbled, thousands of small and medium investors had their investment in the Telecom scrip devalued by millions of dollars. Such a slide in value is unprecedented in the value of the scrip.

The government’s decision followed months of complaints from the public as well as Telecom’s competitors and resellers about a slew of issues ranging from poor service both in telephony and Internet services to high tariffs.

Since taking over the telecommunications portfolio after the elections last year, Cunliffe had on several occasions publicly stated that Telecom needed to do everything it could to increase broadband uptake and pull up its socks on its service. Addressing a meeting of Pacific Islands’ communications ministers in Wellington last March, Cunliffe sympathized with the ministers stating he knew how difficult it could be dealing with large monopolistic minded telecom service providers, most Pacific islands being in more or less the same situation.

Industry circles had been anticipating such a move by the government for some time: in recent months, the question was not one of if but when.

In the uptake of broadband connections, New Zealand ranks a lowly 22nd in a list of 30 OECD countries. That has rankled the government for a long time. After a visit to South Korea, which is among the most wired economies today, Prime Minister Helen Clark remarked that she felt like a poor country cousin having seen the far superior range and quality of services that were available there at such affordable prices.

In the months preceding the announcement, Telecom embarked on a multi-million dollar campaign to woo customers to its X-tra broadband service slashing hardware prices and throwing in all kinds of goodies, but failed to achieve targets by a wide margin.

Expectedly, Telecom’s competition and large sections of the public were ecstatic at the government’s decision. Some of the competing companies pledged to invest millions of dollars into new telecommunications infrastructure that would not just make broadband cheaper but also would take it to the country’s provincial areas where currently broadband connectivity is glaringly low.

But this reaction was not universal. Some quarters like the influential Business Round Table put out statements that the government’s decision amounted to interference with private enterprise and would turn off foreign investors. But such objections quickly died down in the overwhelming celebratory atmosphere created by the announcement.

In the following days, it was revealed that Telecom’s chief executive officer Theresa Gattung had said in a March meeting in Australia that telecommunications companies routinely used confusion in billing as a legitimate business tool. She is also said to have made less than edifying remarks about the government’s ability to read the real situation, implying that Telecom’s top echelons, by and large, had not anticipated the decision.

If this was a public relations nightmare for the company, there was worse to come. In the following weeks, long-time chairman Roderick Deane stepped down making way for a new chairman beginning July 1. Media speculation is rife that Gattung may be the next to go. In a face-saving measure, Gattung admitted that Telecom had lost touch with the hearts and minds of the common New Zealander and needed to do everything to win back their favours. New chairman Wayne Boyd has been non-committal about Gattung’s future but has hinted at large-scale changes in restructuring the organization especially from the customer focus and service enhancement perspective.

Local loop unbundling will force Telecom to open its last mile networks –the equipment that connects its exchanges to the end users—to competition. This means it will have to grant physical access to its premises where competitors will have to be allowed to set up their equipment.

Competitors are vary of Telecom giving unconditional access to them, though Telecom has gone on record saying it will not create obstacles in their way and will facilitate the unbundling process. But in other countries where unbundling has been forced by governments on erstwhile monopolies, the situation has not been a happy one. British Telecom is a case in point. The unbundling process in the U.K. has been far from smooth.

Telecom will also be forced to remove caps and restrictions on the bandwidth that it makes available to competitors and resellers. This will make broadband faster and cheaper for the end user and will also result in far greater broadband uptake, taking the country several notches higher in the OECD list. The process will take several months to complete but users and the competition is happy that the stage has finally been set.

Meanwhile, there is considerable interest from different parts of the world in the expected boom in content services that will be driven by New Zealand’s imminent broadband explosion. Faster and more widespread broadband is expected to hasten the advent of Internet Protocol (IP) based television where television content is delivered through the broadband connection.

Unlike conventional television broadcasting, IPTV is interactive and viewers have a range of conveniences while watching content (they can even fast-forward or rewind a movie while it is being telecast as if it were running from a DVD player or VCR). Video rental companies are already in talks with European and American firms on delivering such content when the broadband revolution begins to take off in the country about 12 months from now.

But some sources in the telecommunications sector feel it is way to early in the day to plan for the advent of high-end services like IPTV: they would rather hold their enthusiasm until the unbundling process begins in right earnest.

In the meantime, Telecom’s competition waits in the wings impatiently watching developments that will lead to the opening of Telecom’s doors for them when they will be able to rush in and set up their own services between the exchanges and the users.

The battle to win over the hearts and minds of New Zealanders in the coming months is guaranteed to be intense and full of action.