Menu
Menu
Structural separation canvassed by Telecom

Structural separation canvassed by Telecom

A radical outcome is now more likely.

Telecom New Zealand (TNZ) announced last week it is considering selling its functionally separated access division, Chorus. It also proposed that TNZ’s binding FTTN undertakings, agreed as part of its 2008 functional separation, be reconsidered in the light of the government’s publicly funded dark fiber rollout. New Zealand needs a clear way forward to next-generation access

In 2008 TNZ agreed to accelerate its FTTN rollout as part of its functional separation plans, committing an extra $200 million to “cabinetisation” of its access network. TNZ agreed to install 1,500 node cabinets by June 2010, and 3,500 by June 2011.

The New Zealand government subsequently announced a publicly funded $1 billion ultra-fast broadband (UFB) rollout of wholesale-only dark fiber. Tenders from prospective investors in the network, including TNZ, are currently under consideration. The UFB network will ultimately reach 75 percent of the population.

It has never been clear how these two infrastructure programs should be reconciled. Arguably the UFB program should supersede FTTN, but the two programs have been allowed to run in parallel. As we have previously observed, New Zealand currently lacks a clear transition strategy from copper to the new world of fiber.

TNZ forces the issue

TNZ has now forced the issue by calling for the relaxation of three of its FTTN undertakings in the light of the fiber rollout. In a prepared statement, TNZ requested that the government:

• suspend the forced bulk migration of existing broadband customers onto the new cabinetized broadband service

• remove the requirement for TNZ to migrate 17,000 customers onto a new VoIP-over-copper service by the end of this year

• remove the requirement for TNZ to build a new set of wholesale systems that are not consistent with the industry structure implied by UFB.

TNZ’s statement was prompted by a news story suggesting that a partial or complete nationalization of TNZ’s access network was being considered as part of a deal with the government to secure the UFB contract.

TNZ CEO Paul Reynolds also confirmed that “Telecom is […] undertaking a thorough assessment of the merits of structural separation”, thus confirming at least one aspect of the news report. The government has subsequently rejected the idea of repurchasing the privatized access network, but a float of the access network business remains an option for TNZ.

A radical outcome is now more likely

It makes little sense to pursue large-scale investment in FTTN while a national FTTH network is rolled out in the small New Zealand market. But then the future of Chorus becomes a sticking point in any transition strategy. What role should Chorus play in the UFB rollout?

The government’s UFB program has two main objectives: to improve service levels in the telecoms industry, and to radically address structural issues in the market for telecoms services. The endgame for the government is a structural shift to a national wholesale-only dark fiber network which will bypass TNZ’s copper network. In other words, the UFB is designed to create a structurally separated access network.

Chorus is the obvious vehicle for TNZ involvement in the UFB rollout, but it can only have a major role in the UFB program as a structurally separated entity. A Chorus wholly owned by TNZ will be subject to the accusation – justified or not – that it breaches the separation requirements of government policy.

If Chorus wins the UFB tender as a separated entity, then the transition strategy becomes clear: Chorus would upgrade its existing copper and FTTN network to a full FTTP network. The alternative – competition between TNZ’s FTTN and the UFB network – is a lose-lose scenario for the incumbent and the government.

Given the current policy settings, TNZ has little choice but to consider structural separation of Chorus if it wishes to have a role in the UFB network. TNZ’s desire to relax its FTTN undertakings suggests that UFB is now its preferred infrastructure option, and that it is willing to pay the price of participation. It seems that the government’s radical restructuring of the industry is getting closer to realisation.

David Kennedy is research director Asia-Pacific at Ovum.

Join the CIO New Zealand group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.

Join the newsletter!

Error: Please check your email address.

Tags ovumChorustelecomanalystdavid kennedy

Show Comments