Government asks for opinion on Telecom separation – but is it way too late?

The government’s $1.35 billion ultrafast broadband (UFB) process continues to run on parallel tracks.

Communications minister Steven Joyce today released an MED discussion document, designed to elicit feedback on the implications of a Telecom break-up.

Telecom has offered to split into network (Chorus2) and service companies in its bid to secure all 33 Crown fibre regions. Chief executive Paul Reynolds has repeatedly underlined that his company’s bid is a national one.

Changes to the Telecommunications Act would be needed to facilitate a “de-merger” of Telecom into two separately listed companies.

“Such potential changes would be of significance to the industry, investors and end-users in New Zealand,” says the introduction to the discussion document released today (read it online here).

Feedback closes October 15.

InternetNZ chief executive Vikram Kumar was quick to praise the discussion document, which, at first glance, looked like it sensibly framed issues such as the transition from today's copper local loops to an all-fibre world. Regardless of which arm got the legacy copper, Telecom could still monopolise local exchanges. As  the discussion document tartly notes:

Structural separation would not affect the underlying problem of limited competition at the network level, which confers market power on the network owner.

The subtext seems to be: expect a bunch of new regulations if Telecom is given the green light to split.

Why now?
By releasing the discussion document, Mr Joyce has told the world that a Telecom carve up is something that's definitely on his radar.

But the thing is - why discuss this now?

Crown Fibre Holdings, charged with recommending options to Mr Joyce, has already entered “binding negotiations” with local lines company bidders for Crown fibre regions in Whangarei, the central North Island and Timaru.

Asked to define “binding negotiations”, a spokesman for Crown Fibre Holdings replied:

“On the basis that we successfully conclude negotiations with these prioritised parties, binding agreements would be made.

“There is nothing binding today. It means that we are now entering advanced stages of negotiations with these parties.”

Too late, too late (at least if Telecom sticks to its guns)
On September 9, Crown Fibre Holdings chairman Simon Allen said his agency was “well on track to make recommendations for binding offers for initial investment partners to shareholding Ministers in October 2010”.

With feedback on the discussion document not even due to close until October 15 (let alone time for the MED to digest it), that would simply leave no time for the Telecommunications Act before Northpower (Whangarei), The Central North Island Fibre Consortium and Alpine Energy (Timaru) are signed and sealed.

And if Telecom’s Dr Reynolds holds firm on his give-us-the-nation-or-give-us-nothing line, that means any discussion of a break-up of his company would be purely academic.

Three possible outcomes
This is a discussion that should have been started, and finished, before Crown Fibre Holdings' negotiations began.

Now, either the discussion document will become moot, or Crown Fibre Holdings current negotiations will be be for nought. 

Or, there's a third possible outcome: Dr Reynolds backs down, a little, and offers structural separation if Telecom wins most of the country, not all of the country and/or Chorus is able to partner with regional winners.

RELATED: Crown Fibre shuns Telecom ... and Telecom shuns Crown fibre