Telecom's FTTN rollout gives it the advantage in UFB: Freeth

Regulatory holiday lambasted by competitors, but Telecom stands firm

TelstraClear CEO Allan Freeth is “95 per cent certain” that Telecom will get the bulk of the Ultra Fast Broadband initiative – the remaining 25 areas, or around 80 percent of the build.

Freeth spoke to Computerworld following the first day of the TelCon 11 industry conference in Auckland. He says when Telecom CEO Paul Reynolds claimed its Fibre to the Node rollout will reach 86 percent of New Zealanders it was a significant announcement.

“Before I came in today, if you’d asked me I would have said 60-70 percent that Chorus will win it. Today I’d raise that to 95 percent,” he says. “I didn’t know where they were up to with their FTTN build. Having heard they’re at 86 percent - if you don’t give it to them, they will just compete. And guess what? You have two fibre networks competing with each other.”

“All credit to Dr Reynolds and his Board. All credit. If they get through the regulatory stuff, it’s a very impressive coup.”

Freeth says that if the Telecommunications Amendment Bill currently before parliament is passed then Reynolds will have succeeded in re-establishing Telecom’s monopoly.

According to Freeth the legislation will mean that the UFB is excluded from Commerce Commission oversight for ten years, which is why its referred to as a regulatory holiday. He says he would have been happy for Telecom to get the UFB contract but only on a level playing field.

During the Q and A session with the telco CEOs, Computerworld asked Reynolds how important the regulatory holiday is to Telecom’s bid. Reynolds says it’s not about a regulatory holiday, it’s about price certainty.

“I guess my view is if the government wants to partner with Telecom in building UFB we want reasonable price certainty for the first ten years only. Which by the way is well short of the pay-back period of the investment,” Reynolds says.

Reynolds estimates it will cost Telecom up to $6 billion to be part of the UFB and this would include the cost of structural separation.

Freeth says the deals being negotiated by Crown Fibre Holdings and its prospective partners are being done in secret and although CFH CEO Graham Mitchell denied that the contracts could change, Freeth believes otherwise.

“It’s silly saying contracts can’t be changed – they get changed every day. When they say they’re locked in they’re referring to a set of contracts that we’re not exposed to,” Freeth says.

He says that the government has dropped the test of discriminatory behaviour between Local Fibre Cos and retail service providers (RSP) to one of discrimination, not equivalence. The difference, according to Freeth, is that under current legislation Telecom can be forced to pay a $10 million fine if it doesn’t provide services at the same price to all its wholesale customers. Under the legislation being passed to enact UFB, Freeth believes that sanction won’t be in place.

“The other thing that worries us over the lack of transparency is whether there’s a deal being done that allows Telecom to move its whole retail base over to fibre in a non competitive sense. That will make their business case look very sweet," Freeth says.

“You’ve got the same organisation [Telecom] with the copper legacy asset and the fibre, so what are you going to do? You’re able to control both sides of the equation; it’s a beautiful place to be.”

During the CEO panel Kordia, Vodafone and 2degrees raised concerns about the regulatory holiday. 2degrees CEO Eric Hertz criticised the lack of transparency over the process and Vodafone CEO Russell Stanners says there is plenty of uncertainty in the industry.

Stanners beef is that he doesn’t know whether it’s possible as a RSP to make a decent margin out of the UFB. He says in order to be participate Vodafone would require 30 to 40 percent mark up on wholesale prices – but he’s seen it reported that the expectation is it would be just 18 percent.

“At 18 percent mark-up we ain’t playing,” he says.