Telstra deal upstages Telecom inquiry

Friday 25th February 2000

By Rob Hosking

The government's telco inquiry had the wind taken out of its sails by yesterday's surprise $1.2 billion Telstra-Saturn megadeal, a move seen as evidence a draconian shift in regulation is not needed.

Underdog telco companies had been privately gloating the so-called "friendly" government was considering forcing Telecom to open its copper local loop network to its competitors.

But yesterday's announcement of the massive deal between Telstra and Saturn is evidence there is competition in the sector.

"We think the best way of achieving competition is to have another network and that's what this means," Telstra Saturn's business development manager, Sean Wynne, said.

A second network - similar to the situation with mobile phones in New Zealand - was preferable to unbundling the local loop, he said.

The paradox of the announcement yesterday is that while it may stop the government making such a harsh move, it was also prompted by what the two companies say is a shift in regulatory attitudes since the change of government.

"Two things needed to happen before New Zealanders get full competition," the company's chief executive, Jack Matthews, said.

"First, there had to be a marketplace less tilted in favour of the incumbent. Second there had to be a more co-operative, rational approach among Telecom's competitors."

The first stage began in November, and this Telstra-Saturn merger of their New Zealand operations was the second, Mr Matthews said.

The move by the two companies - billed by chairman Lindsay Yelland with only slight hyperbole as "the biggest move in New Zealand telecommunications since Telecom was privatised" - will see an ambitious programme of cable roll out over the next few years.

A submarine link with three times the bandwidth currently available will run up the country from Christchurch to Kaikoura, Wellington, the Kapiti coast, Wanganui, New Plymouth and Auckland. The company will also provide direct access to businesses, probably through wireless connections, in regional centres such as Hamilton, Dunedin and Tauranga.

The financing details of the move are sketchy. No information is forthcoming on how the venture is to be capitalised, except Mr Yelland said there would be "an appropriate amount of leverage."

Most of the capital for the new network would be spent in the first two years. No timetables were given for when the networks would be completed, although Mr Matthews promised that customers outside Wellington would be signed up by the end of the year.

The deal was signed between the two parent companies, Telstra International and Austar, only on Wednesday night and contracts with third parties for cable roll-out are still to be finalised.

Since 1995 Saturn has installed cable in most of Wellington. Telstra New Zealand entered the market in 1996, focusing mainly on the business market.

While Telstra resells a mobile phone brand which uses the Vodafone network, Mr Yelland said it was possible mobile access - "wireless, not necessarily cellular" - would be provided "off the back" of the new network.

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