It has been widely assumed that if the Commerce Commission presses ahead and sets a lower price for accessing the local loop in big cities and a higher one in smaller towns and rural New Zealand, rival telcos will have more incentive to install their own infrastructure in the big cities than elsewhere.
But it may not prove that simple, and it could even be larger provincial towns that provide the richest pickings for any telcos brave enough to install their own equipment in Telecom's exchanges.
The commission last week signalled it would set an average price for access to Telecom's local loop of $20.77 a month, at the low-end of analysts' expectations of a $20-$25 charge.
It also opted to de-average access to the local loop, but only to a small degree, creating two price bands and splitting off a seemingly arbitrary 27 per cent of lines in non-urban areas. There, the local loop access charge will be $32.20, helping the push access price in the big cities down to $16.42.
The approach the commission took seems to have been to pick a price at which it reckoned unbundling might become an attractive proposition, and then stretch that out across as much of the country as it could, at the risk of brassing off people in the regions.
Cynics see politics playing a part in that calculation, noting that the 27 per cent of people who now face higher telco charges mostly live in areas that are not Labour strongholds.
Telecom signalled, subtely but clearly, at its results briefing on Friday that people who live outside the main centres would face higher phone line rentals than city-dwellers if the Commerce Commission's de-averaging decision was upheld. Its retail arm will have no choice but to pass the different access charges on to its customers, just as its rivals would also need to if they chose to engage in infrastructure competition outside the main centres.
Under operational separation, Telecom Retail will be in the same boat as every other telco when it comes to purchasing access to the local loop, the company pointed out. But by the same token, Telecom's rivals could get away with charging a higher price for phone lines and bundled services in the $32.20 zone, while remaining competitive with Telecom.
Assuming rival infrastructure providers would be better placed to undercut Telecom in urban areas, just because they will pay less to access the local loop, is to assume that Telecom's own pricing would not change in line with the charges set out by the Commerce Commission.
In fact, investing outside the major centres could be more attractive. Telecom has signalled it is first likely to scrap its exchanges and roll out fibre to roadside cabinets in the urban centres, leaving cabinetisation in provincial towns and rural areas till later.
Investing in local loop unbundling in the big cities therefore carries a heightened risk that competitors will see their exchange equipment "stranded" as a result of the wider deployment of fibre and they will have to earn a quicker return there, to compensate.
Access to exchanges in the very centres of Auckland, Wellington and Christchurch may be sought-after because of the high-value customers that infrastructure providers would be able to reach after they are unbundled. But it's possible provincial towns – where spending on toll calls can be high – may prove a richer target for second tier telcos than the suburbs of the big centres, notwithstanding the higher local loop access charge.
Though it may prove a useful pressure valve, competition on the local loop will not substantially improve New Zealand's broadband network.
This is if, as most experts believe, it's long copper phone lines and lack of fibre that is holding back users' experiences, rather than a lack of dslams in exchanges.
These are issues that may be better addressed next year by the relativity of access prices for local loop and sub- loop unbundling.
The worst case scenario for the Government is that rival telcos are still unable to compete with Telecom Retail on the local loop post-unbundling, the lower wholesale prices that feed through from Telecom Retail getting cheaper access to the local loop go unnoticed in the main centres, and rural voters take umbrage from price hikes.
There is plenty of room for different views on whether the pricing proposed by the commission is fair, and there is water to go under the bridge. But it's ironic that the first nail in the coffin for New Zealand's previously egalitarian pricing regime for telecommunications services may be hammered in under a Labour government.
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