Is our new SOISP kosher?

The Kordia-Orcon deal carries the risk of the SOISP becoming a vertically integrated market force

“The government’s reforms are directed at creating an environment for the private sector to invest with confidence in new services and infrastructure, while generating the best long-term results for consumers. The government has no current plans to become directly involved as an investor in core infrastructure.” — Hon David Cunliffe, Minister of Communications

Cunliffe’s advisers should’ve done their homework before feeding that statement to him, as it wasn’t true at the time. State-owned enterprise BCL, or Kordia as the name is now, has been very much involved in New Zealand’s core infrastructure.

Kordia not only has a monopoly on broadcast transmissions here, but also boasts about its telecommunications solutions featuring extensive fibre-optic and microwave networks, plus “IP core”. This is a multi-protocol label switching enabled network, used for Kordia’s broadband service.

Does that look like “infrastructure” to you? Because it sure does to us here at Computerworld.

Apparently, the Extend wholesale wireless broadband fiasco, with only 2,000 out of a planned 20,000 capacity customers taking up the expensive service, sparked Kordia’s foray into the retail market.

First, despite the denials last year, ihug was targetted by Kordia, but the price tag was too hefty so it went to Vodafone instead for $40 million.

Orcon however, with a similar number of customers — 75,000 as compared to 80,000 — was up for grabs at a big discount, so Kordia struck and the deal was done. Now New Zealand has a state-owned internet service provider, or SOISP, and this raises all kinds of questions.

The present telco regulation is aimed at privately-held providers, as well as the state-sanctioned monopoly of Telecom. How will “Kordiacom” fit into all this? Presumably the government-owned entity will now be liable to pay the Telecommunications Service Obligations Tax, as it will become a telecommunications provider soon, courtesy of Orcon’s mobile wholesale deal with Vodafone, which comes into effect in October.

When asked about the regulatory aspects, outgoing telecommunications commissioner Douglas Webb said there was nothing wrong with this arrangement.

“I don’t have any negative reactions,” he said. “Kordia is a network provider and on the face of it is simply taking that into retail.”

He said the move was neutral and maybe even positive if Orcon was given the financial capacity to compete.

Is it really that easy though? Can the state sit on both sides of the telco regulatory fence and pretend to be impartial?

While buying Orcon probably made business sense for Kordia, the deal carries the risk of the SOISP becoming a vertically integrated market force, as blogger David Farrar and others have noted.

Instead of running an open access wholesale network for all comers, Kordia will now compete against smaller private enterprises as well as larger companies like Telecom and Vodafone in the retail space.

Can we, as New Zealanders, expect some really hot retail deals from Orcon that undercut everything in the market, as well as an aggressive wholesale strategy to lower prices in order to further the government’s Digital Strategy goals then?

Is it really in order for a SOISP to continue milking a market with artificially high pricing, as set by Telecom, courtesy of its almost two decades long legally underpinned monopoly?

Unfortunately, Orcon is merely a reseller of Telecom and Vodafone services at the same slim, unprofitable margins that every other provider gets. Orcon has no network of its own to reach its retail customers with, and profit-driven SOE Kordia isn’t likely to build one either. It’s business as usual.

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