This is the response from the ISP Association NZ:

ISPANZ CONSIDERS TELECOM'S ALTERNATIVE PROPOSAL TO OPERATION SEPARATION

The Internet Service Providers' Association of New Zealand (ISPANZ) today filed with the Ministry of Economic Development (MED) its response to Telecom's alternative proposal to Operational Separation.

ISPANZ concurs with the Minister of Communications David Cunliffe that Local loop Unbundling (LLU) and Unbundled Bitstream Access (UBA) are the top priorities in telecommunications reform. ISPANZ suspects Telecom may be playing with industry concern that progress on these timelines be maintained and expresses its support for the Government's Operational Separation process.

In the long term ISPANZ is not against the concept of structural separation for Telecom's network division, but there are other substantive issues with Telecom's proposal. These include an "all-or-nothing" requirement for the proposed changes that would mean starting again to produce legislation, a departure from the proven British Telecom model, increased wholesale pricing, and weaker equivalence requirements.

ISPANZ President David Diprose says the legislative changes required would cause substantial delays, and diverge from the mandated path. "The Government's legislation was passed by an overwhelming majority in Parliament and ISPANZ does not want to re-litigate it."

The British Telecom model of operational separation involves a three-way split - network, wholesale, retail - and is working well in practice.

Telecom's proposal appears to be a variation on its two-way split proposal that last year was not taken up by the Select Committee.

ISPANZ would be concerned at the removal of "arms-length", or independence, requirements for the Telecom Wholesale business unit.

Telecom has proposed they only apply only to a subset of regulated services within the wholesale business. And also wants to provide group incentives to wholesale business unit employees. "These settings would create ambiguity for staff operating in that unit and lead to a more complex situation in terms of delivering equivalence to wholesale customers," says Diprose.

That equivalence, applied across network and wholesale services, is key to providing a competitive market. At the wholesale level, the ability for ISPs to purchase services such as UBA on the same basis as Telecom Retail is a key early rung in the "Ladder of Investment" approach that underpins the telecommunications reform. "This equivalence provision is reinforced by clear boundaries, no group incentives, and independent oversight," says Diprose.

ISPANZ regards Telecom's investment arguments as unconvincing.

"Regulated pricing mechanisms already take investment incentives into account and ISPANZ members stand ready to invest, or are already investing, in infrastructure and services in anticipation of successful implementation of the Government's regulation," says Diprose.

This is the response from InternetNZ:

Telecom's proposal is unworkable - InternetNZ Media release – for immediate release
15 May 2007

InternetNZ has today advised the Government that it considers Telecom's proposal for structural separation and changes to the regulatory framework as unworkable. The proposal is not a basis for further discussion, and advises the Government to continue forthwith with the operational separation process.

Deputy Executive Director Jordan Carter says Telecom's proposal cannot be accommodated by the Telecommunications Act amendments passed last year, and if accepted would dramatically weaken equivalence obligations.

"The Telecom proposal asks for a complete re-write of a regulatory framework that is only six months old. The required legislative changes would be substantial and complex, requiring substantially changed policy settings.

They would take a year or longer to develop and enact.

"On top of that, Telecom's proposal would weaken the equivalence obligations, particularly for Telecom Wholesale, that are at the core of the model applying to British Telecom and the New Zealand model as proposed by the MED. Weaker equivalence would reduce the prospect of investment by newcomers, an outcome that nobody wants."

Telecom's proposal seeks significant change to the way pricing of regulated services is determined, asking Government to set prices directly. It seeks to override other Commerce Commission processes around addition and deletion of regulated services.

It asks to be granted a regulatory holiday to improve its investment returns - an approach not in line with the BT model and one that is opposed in UK and by the European jurisdictions

"Telecom claims there is an issue with rate of return on assets. The pricing of regulated services under the Telecommunications Act are already calculated with investment incentives in mind to ensure a long-run future for these services," said Jordan Carter.

"Structural separation may well be useful in ensuring transparency around rate of returns and therefore InternetNZ supports it as a long term option.

InternetNZ has endorsed structural separation in its previous submissions to Government. However, we cannot support it in the context of Telecom's proposal.

"Telecom is always free to propose a more workable structural separation after operational separation is under way. In doing so they need to respect their commitments made last year to accept a three-way operational separation along the lines applying in Britain, and proposed in New Zealand.

"We urge the government to continue with the operational separation process, taking account of the constructive comments made by many submitters.

Telecom's model would chip away at the bottom rung of the Ladder of Investment, and that is not in the interests of New Zealand's Internet users," Jordan Carter said.

freitasm: I wonder how much power TelstraClear CEO Allan Freeth exercises at TelstraClear now that the Tauranga wireless network is no more, the deal with Vodafone 029 is no more and his days as TCL chief are probably in countdown...