Telecom continues to be the textbook example of a transnational corporation (TNC). It made a $754 million profit for the 2003/04 financial year; it raised dividend payouts to its predominantly foreign shareholders to 75% (up from 50%), with plans to raise them to 85% for the 2004/05 year. It’s steadily tracking back up to the halcyon days of the 1990s when dividends went as high as 98%. What that means in plain English is that Telecom retained 2c in every dollar of profit in the company – the rest was paid out, primarily exported overseas. Currently that ratio stands at 25c in the dollar of profit available for reinvestment in the country’s telecommunications infrastructure (and reducing to 15c next year). Never mind, the Chief Executive Officer, Theresa Gattung, is in line for a $2 million salary package this year.

Unbundling is seen as vital if New Zealand is to benefit from the full spectrum of broadband Internet services that are now available. Telecom had promised to sign up 100,000 households onto its broadband service, Jetstream. The latest figures show that it has only just topped 80,000 and that progress is painfully slow, primarily because Telecom charges so much, and the service is pitted with snags. In September 2003, the Telecommunications Commissioner, Douglas Webb, provisionally ruled that Telecom must "unbundle" its local loop and make its network available to competitors (for a rental, of course). A cost benefit analysis for the Commissioner conservatively estimated that, as a result, there would be net benefits to consumers of $204 million over five years. This would mainly come from falling prices.

But when the Commissioner’s final recommendation was delivered to the Minister of Communications, Paul Swain, immediately before Christmas 2003, Webb had done a complete about-face. "He would not, after all, recommend unbundling: only a designated form of bitstream access that obliged Telecom to offer a high-speed digital subscriber line (DSL) date service to competitors at a set wholesale rate. Had this emerged in the Inquiry’s original findings, it might have been cause for disappointment from the proponents of bold regulatory action – but not bewilderment. After all, ordering an incumbent telephone company to open its lines is a fairly radical step. And although unbundling has been a screaming success in such places as Japan, the results have been more tepid elsewhere. Some analysts hold that simply handing TelstraClear access to Telecom’s network means that TelstraClear will have no incentive to further invest in its own network.

"But the Inquiry had apparently considered these downsides and – in what was by all accounts a deliberately conservative analysis – still concluded that unbundling offered substantial benefits. So what happened? Webb credited a ‘market-led solution’ announced by Telecom between the draft and final reports, which will see Telecom partially free up access to circuits used to deliver data services to major users. This, he said, had made sweeping regulation unnecessary.

"It seems odd. The corporate sector is relatively well served for competitive telecommunications offerings. It’s the consumers who don’t currently enjoy competition. To its credit, the Commission has focused on the most glaring problem: the market for high-speed DSL services, which Telecom, because it owns the lines to our houses, controls. Telecom has been unable or unwilling to make JetStream attractive to many of us. As a result, New Zealand, which once led the world in uptake of the Internet, has fallen far behind other developed countries in the move to broadband.

"But the proposed solution has problems. Telecom’s competitors will be able to offer a JetStream-like service over Telecom’s network, but it’s unclear what, if any, guarantees those competitors will be able to offer on the service. Worse, the Commission has dictated that the upstream speed (that is, from you back to the network) will be no greater than 128Kbit/s. On a good day, the upstream speed of Telecom’s JetStream is about three times that: so Telecom will be ordered to provide competitors with a service that is inferior to the one it sels to consumers… Even leaving aside the various conspiracy theories about the about-face, it is a strange solution indeed" (Listener, 31/1/04: Computers, Russell Brown; "Open up! Why the Telecommunications Commissioner has done an unbundling about-face"). Telecom’s Chairman, Roderick Deane, described the Commissioner’s recommendation as "realistic" (Press, 6/2/04; "Telecom upbeat on debt, payout", Marta Steeman).

Good old Telecom lobbying had done the trick. The final decision was up to the Government. "In high-speed Internet services, the future for Telecom could have been much less rosy if the Government had forced the company to (unbundle)…To Telecom’s huge relief, the Government, in May 2004, rubberstamped the recommendation…that Telecom not be forced to do that, when almost all other developed countries have required it. Instead, Telecom must sell these services at a wholesale level to its rivals. The decision protects Telecom against TelstraClear, for whom it was a great blow. Telecom Chairman, Roderick Deane, in a typically understated manner, said this week that ‘some of the regulatory decisions had provided a greater degree of certainty around our operating environment for the future’" (Press, 9/8/04; "Gattung ‘focused on the basics’", Marta Steeman).

The most interesting thing about the Cabinet decision to rubberstamp the Commissioner’s decision to not order unbundling is that official papers reveal that the Minister, Swain, was overruled by his colleagues. He had wanted to reject Webb’s recommendation. Ernie Newman, Chief Executive of TUANZ, said: "It just seems astonishing that a well respected Cabinet Minister who has done his homework could be overruled by the rest of Cabinet who clearly have not been exposed to the same level of detailed argument" (Press, 22/6/04; "Cabinet overruled Swain on opening up Telecom network", Marta Steeman). The official papers reveal that Swain was advised by the Ministry of Economic Development that local loop unbundling should be reconsidered by the Commissioner. Swain tried to put a brave face on the decision, saying that "they are on a good behaviour bond" and that at any time he could ask the Commissioner to reconsider the issue (Press, 22/5/04; "Minister says Telecom put on ‘good behaviour bond’", Marta Steeman). Don’t hold your breath. Green telecommunications spokesperson, Sue Kedgely, was right on the money when she said that the Government had made a "political call" in response to "intensive lobbying by Telecom" (Press, 22/6/04; "Cabinet overruled Swain on opening up Telecom network", Marta Steeman).