Commerce Commission sniffs around Telecom-Telstra-Vodafone cable

Mark Callander

Regulators are sniffing around the Telecom-Telstra-Vodafone transtasman cable, announced yesterday.

"We haven’t received a clearance application in relation to the cable joint venture. However we will be taking a look to see if it raises any competition issues," Commerce Commission comms manager Allanah Kalafatelis told NBR ONLINE this morning.

A finger in both pies
Telecom will have a (roughly) one third share in the joint venture, tentatively named Tasman Global Access (TGA).

That was seen as a point of possible concern by InternetNZ, the Telecommunications Users' Association, the Greens, and ISP CallPlus, given Telecom holds a 50% share in the Southern Cross Cable (currently NZ's only major broadband link with the outside world).

Vague target
So far, there's not much of a target for the watchdog to aim at. Vodafone CEO Russell Stannners yesterday told NBR that shareholdings had yet to be finalised (although it was anticipated each of the phone company partners would hold an equal share). It had not been decided in which country the joint venture would be incorporated (a key point in terms of regulation. Southern Cross Cable is incorporated in Bermuda, safely beyond the Commerce Commission's reach).

A management team has to be hired, and the cable not yet put out to tender.

CallPlus taking concerns to Commission
Meanwhile, CallPlus CEO Mark Callander says he will raise concerns about the cable with the Commission. He will also approach the partners in the joint venture.

"The real disappointment is this will prevent another cable being built which would have benefited the entire industry and ultimately improved competition for consumers," Mr Callander told NBR Online - echoing comments by Pacific Fibre co-founder Lance Wiggs, who says a second cable to the US is needed. However, Telecom CEO Simon Moutter and the other players had made it "essentially impossible to justify another cable."

Wholesale access fears
Mr Callander fears a cosy Telecom-Vodafone duopoloy is now in place, following Vodafone NZ's purchase of TelstraClear from Telstra. The Vodafone-TelstraClear deal included an element of transtasman alliance; Vodafone NZ has the contract to service the NZ business of Telstra's Australasian clients.

On a more technical level, there's the concern raised in NBR's story yesterday: whether or not ISPs other than Telecom, Vodafone and TelstraClear will get wholesale or other access to the new cable, and on what terms.

Telecom was vague on this point. "Another cable just makes the market more competitive but it's too early to say exactly how that will play out in terms of wholesale arrangements," a spokeswoman told NBR.

"Given the capacity of the new cable there should be plenty of wholesale access opportunities for players like CallPlus," Mr Callander told NBR.

"However I doubt this was even included in the business case – that is concerning part."

And if wholesale access to the new cable is not offered on competitive terms, then ISPs may balk at the cost of bandwidth, and we may not see the performance or data cap increases many are hoping for.

With the Telecom-Telstra-Vodafone business plan at such a sketchy stage, the access debate is necessarily vague, too.

But look for it to resolve into focus quickly. The trio say they will finish their cable by mid-to-late next year - a brisk timetable.

ckeall@nbr.co.nz


ISP market share 2012

Telecom: 49%
Vodafone-TelstraClear: 29% (TelstraClear: 16%; Vodafone:13%)
CallPlus*: 9%
Orcon: 5%
Others: 8%

* Including CallPlus' residential brand, Slingshot

Source: Commerce Commission

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12 Comments & Questions

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This cable will do nothing to help competition as its a privately owned cable where bandwidth will not be sold on the market.
The southern cross cable is a market as the way it operates telecom has to buy bandwidth just like anyone else (they just get a dividend back).
Indeed this new cable will be a negative for competition as it will mean that no other cable could justify being built without large customers which is pretty much only telecom/vodafone in nz.

Pacific fibre did shoot themselves in the foot in hindsight by aiming a little too high. The should have settled for a NZ-AU cable. Most international content providers are happy to provide content from AU (think amazons new au data centre, google pop, third-party cdns) which will never happen in NZ. Better to have content 20ms away in AU than 100ms away in the US.

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Praise the Lord

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What a joke, when the CC allowed the Voda Telstra purchase what did they think was going to happen? That it would create a vibrant competitive market where small vendors could compete LOL. All small vendors are screwed by the large margins in cellular being used to bundle the slightly more competitive areas. Now on top of that a new method of being anticompetitive is about to happen. We will have only two serious vendors in less than 3 years the rest will niche or disappear .
It’s like watching the supermarkets all over again and we all know who ultimately pays every week for their behaviours.

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What about this solution. The government should take a share and let Kordia run that share (they could use the bandwidth for REANNZ that they are funding, anyway) to let it pay for itself. That way they can keep an eye on the anti-competitive behaviour from the inside.

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There is no place for the government in this business. Kordia (and Orcon) should be sold by the government.

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What a load of nonsense! We're increasing international capacity and putting two cables where there was one, and people are arguing it is anti-competitive? There is no prospect of showing anything abusive given we're only at MOU stage. And I fail to understand how agreeing an MOU in relation to a service which at least one of the parties doesn't now provide harms competition. The parties' failure is in not briefing the commission and the market adequately around benefits and protections - allegations like these ones just shouldn't have legs.

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Plainly, you have never worked in opposition to Telecom if you can’t see how easily this can be used in an anti-competitive environment. It’s happening right this second with cellular bundles and that “packaging” will have even more scope with another area of domination available. Just ask any of the smaller operators what happening.

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I suppose the better question is have you? Comparing cellphones with data cable bandwidth and access is a little strange. If your going to throw allegations you should stick to topic. My opinion is that it is a good thing however questions down the road do need to be asked. That cable aint gonna pay for itself people! The companies deserve a return for investing craploads of cash. Th question is how do the goverment and commerce commision encourage them to do it without scaring them off by potentially limiting their return on investment? I think we need to watch this space, this is the first thing Telecom has done investment wise since selling off Chorus. If they havent changed their spots we will soon see it!!

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It's a pretty low cost investment to spoil it for other players who had considered that a direct line to the US was what was really needed. With the good news that Telecom will have significant control and financial interest over both cables we can be sure that NZ will continue to pay world-leading prices for its internet content, and will also have to pay top prices to Chorus for the local high speed broadband because with expensive data few people will have any reason to update. Let's hope John Key will legislate to protect these near monopolies and to allow Telecom/Chorus shareholders to continue to receive unnatural dividends and subsidies from the rest of the nation.

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The users all want a cheaper deal, but they don't want to support (pay for) the investment being made by others. There is no such thing as a free lunch, but everyone on the internet seems to want one.

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Umm thats a good chunk of change (70 million?) so nor sure why you are saying its low ball... i

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The payback period on undersea cable is long (>8 years typically). The pacific fibre venture would have taken 10 years to break even - maybe slightly less with a total investment life of up to 25 years. The venture partners had the capital to do it themselves but have proven that they are only interested in short term profits rather than going for the long term. Infrastructure Telco's are like power companies - its a long term game. Southern cross's rates were revised last year to be in line with the market competiton. You could buy capacity if you wanted and several telco's (and not just NZ based ones) do at the same rate. The southern cross RoI is less than power companies generation investments or what the banks are doing. If you wanted to improve the life of average new zealanders how about sorting out the extortion by those industries. And finally looking at the prices of cafe coffee in AK, the cost of broadband is lower than a months worth of consumption. Priorities????

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