Telecom’s submission: proving the point

Telecom’s submission has been out for a couple of days now, the marketing machine has been in effect, and the news and opinion pieces have followed.

Telecom has made two proposals in its submission. The first, of course, asks the Government to invest in FTTH directly through Chorus, which would use this money to extend its existing fibre network, and which would then wholesale this dark fibre. The second, phenomenally, calls for the Government to forget about investing in fibre, asking instead for the Government to establish a new company that will only invest in a duct network. Telecom naturally believes the Government should outsource this to Chorus as well. Providers would then blow fibre through these ducts when they want to deploy fibre services to a premise.

It’s apparently not so obvious — judging by the media analysis — but this is a bad idea, a very bad idea. Telecom has a responsibility to its shareholders, so is naturally trying to protect its position, and the value of its existing copper network. This is exactly what its two proposals are about. They most certainly aren’t about providing bang for buck, or a smarter Government investment.

I explain in my submission why wholesaling dark fibre does not meet the needs of customers and providers. The drawbacks are too numerous to list again, but it boils down to this: in order to create a truly competitive and innovative environment for the residential and small business market, there must be a neutral, structurally separate, wholesale access infrastructure shared by all of the providers. In plain-speak, this means a suite of lit fibre services between the customers and providers, which the providers use to deliver their retail services over. These lit fibre services are an invisible part of the retail services offered by providers, operating at the most fundamental level. They are a common requirement for all providers, and aggregating this means that barriers to providers are kept as low as possible.

Any plan by the Government that does not understand this will ultimately be an expensive mistake, requiring future financial investments and regulation. Our neighbours in Australia and Singapore understand this. The majority of Government backed FTTH deployments around the world all understand this.

Note: wholesale dark fibre would still be used for business and other customers with special requirements.

So getting back to Telecom’s proposals. The proposal for a duct network proves the point I made in my submission. Wholesaling at the physical layer for the residential and small business market creates substantial barriers to providers. This benefits the large telcos, which are the only providers with the scale necessary to surmount the barriers, locking in large segments of the market in the process. Telecom has just decided to take it one step further and suggest the unbundling be at an an even lower layer. In turn raising these barriers even higher.

Never mind the increased cost, slowed deployment, reduced/slowed uptake, and so on, associated with this duct network proposal.

On the other hand, the first proposal does have some merit. There are good arguments that can be made for a single national network, and for Chorus to be a part of that. But only in the case where Telecom gifts Chorus and its assets in return for a share in a neutral, structurally separate company. There is no sound argument that this entity shouldn’t be structurally separate. Of course, as stated above, in any plan, this new company must provide an open access network for all residential and small business customers.