[UPDATE: Two Degrees' boss says co-location delays have cost his company $37 million, and that it will meet its 40% co-low target once it's national build is complete.]

Just as Two Degrees needs the Commerce Commission's help, relations between the two organisations have hit an all-time low.

The watchdog is ticked off that Two Degrees has not taken up cell tower co-location rights that the commission spent two years arranging.

Our budding third mobile operator is banking on the commission to come to its aid ahead of its August launch.

Specifically, it's hoping the commission will determine in its favour in the key issue of mobile termination rates - or what telcos pay each other (or, in Two Degrees' ideal world, don't) when calls cross between their networks, among other issues.

Chief executive Mike Reynolds has told NBR his company can only offer market-busting prices if the commission comes to the termination party.

The commission does, of course, treat each regulatory issue in separate and neutral fashion.

Still, you can't help but get the feeling, from the commission's letter of June 2 (published below for the first time), that the watch dog is, in general, feeling a little ill-disposed toward Two Degrees.

Relations are heading in the wrong direction.

In the letter, telecommunications panel member Anita Mazzoleni expresses the commission's exasperation that it spent two years' fighting for Two Degrees' right to co-locate on Telecom, Woosh and Vodafone towers, only to see Two Degrees co-locate on just four towers (all owned by Telecom, NBR understands) out of its total network of around 400 cell sites in Auckland, Wellington and Christchurch (in other areas, Two Degrees customers will roam on Vodafone's network).

Between them, Telecom, Woosh and Vodafone spent millions preparing for co-location.

In response, Two Degrees says it could not attach its gear to most cell sites because the Resource Management Act keeps them 10am shorter than cell towers in other countries, simply not leaving enough room for co-location.

Keallhauled wonders how, if correct, this fact was never gleaned by Two Degrees, any of the telcos involved, or the commission before the 24-month co-co-location kerfuffle started.

In the letter, Ms Mazzoleni also warns that Two Degrees is also behind in regulatory filings including a map of cell sites, and that the commission could - but won't - take the telco to the High Court - if documentation is not supplied by June 5 (in the event, Two Degrees did provide the paperwork, blaming administrative oversight).