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### Viewing cable 06WELLINGTON344, NEW ZEALAND TO ORDER LOCAL LOOP UNBUNDLING

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
06WELLINGTON344 | 2006-05-04 06:35 | 2011-04-28 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Wellington

`

    VZCZCXRO3599
    RR RUEHNZ
    DE RUEHWL #0344/01 1240635
    ZNR UUUUU ZZH
    R 040635Z MAY 06
    FM AMEMBASSY WELLINGTON
    TO RUEHC/SECSTATE WASHDC 2751
    INFO RUEHBY/AMEMBASSY CANBERRA 4391
    RUEHNZ/AMCONSUL AUCKLAND 0737
    RUEHDN/AMCONSUL SYDNEY 0438
    RUCPDOC/USDOC WASHDC 0045

` `

    UNCLAS SECTION 01 OF 02 WELLINGTON 000344

    SIPDIS

    SENSITIVE
    SIPDIS

    STATE FOR EB/CIP AND EAP/ANP FOR DRICCI
    STATE PASS TO USTR FOR BWEISEL
    COMMERCE FOR 4530/ITA/MAC/AP/OSAO/ARI BENAISSA
    COMMERCE FOR 6920/ITA/OTEC/MYLES DENNY-BROWN
    SYDNEY FOR CS

    E.O. 12958: N/A
    TAGS: ECPS ECON ETRD NZ
    SUBJECT: NEW ZEALAND TO ORDER LOCAL LOOP UNBUNDLING

    REF: A. WELLINGTON 230

         ¶B. 2004 WELLINGTON 428
         ¶C. 2004 WELLINGTON 66

    ¶1. (U) Summary: The New Zealand government announced May 3
    that it would compel Telecom Corp., the country's former
    state monopoly, to open its fixed-line telephone service to
    competition.  New Zealand has been one of only two OECD
    countries that had not mandated unbundling of the local loop.
     The decision aims to improve New Zealand's dismal record on
    broadband access, which has been a reason cited by U.S.
    businesses for not increasing their investment in the
    country.  The move is considered the biggest shakeup of the
    New Zealand telecommunications sector since Telecom was
    privatized in 1990.  End summary.

    ¶2. (U) The decision by Cabinet, which must be approved by
    Parliament, would give competitors access to Telecom's copper
    network and allow them to provide alternative phone and
    Internet services to any land-line customer.  The resulting
    competition would be expected to spur lower prices for
    telephone services and increase broadband access in the
    country.  New Zealand's broadband uptake ranks at 22 out of
    30 OECD countries, at 6.4 percent of households.   Prices for
    mobile, residential and business telephone services in New
    Zealand are significantly higher than the average for other
    OECD countries.

    ¶3. (U) Under the government's plan, the rates that Telecom
    charges Internet service providers would be regulated.
    Telecom also would have to offer competitors access to the
    fastest speeds available on its network.  Telephone services
    would be separated from broadband services, allowing
    competing providers to sell one and not the other if they
    choose.  Telecom also would be required to separate
    accounting of its wholesale and retail businesses, to ensure
    that any cross-subsidization is disclosed.

    ¶4. (U) The announcement followed a government review of the
    telecommunications sector that began in December 2005.  The
    Cabinet on May 3 approved the proposed legislation to
    unbundle the local loop, which Communications Minister
    Cunliffe said he expected to be introduced soon in
    Parliament.  Approval is expected by the end of the year,
    with implementation of the law beginning in 2007.

    ¶5. (U) The government will continue to look into other
    measures to improve the country's broadband performance,
    including the possible structural separation of Telecom's
    retail and lines operations.

    ¶6. (SBU) The decision indicates the government is finally fed
    up with Telecom, after waiting years for the utility's
    promises to voluntarily improve broadband access and prices
    to bear fruit.  Telecom also had used its status as the
    country's largest listed company as a threat, warning that
    regulation would cause both its profitability and its share
    price to suffer, along with the value of government pension
    funds that are heavily invested in the company.  Telecom is
    by far the largest publicly traded company headquartered in
    New Zealand and is the only New Zealand business in the
    Fortune 2000 list of major global firms.

    ¶7. (SBU) As recently as May 2004, the Cabinet disregarded the
    advice of the Ministry of Economic Development and then
    Communications Minister Swain to unbundle the local loop (ref
    B).  The Cabinet's decision against unbundling also preserved
    a bargaining chip that could be used in possible free-trade
    negotiations with the United States, which New Zealand
    officials quietly concede are now less likely.  The
    government in 2004 instead required that Telecom provide its
    rivals with a basic high-speed Internet service and took the
    threat of unbundling off the table so long as Telecom met
    certain targets.  The company reached the goal of having
    250,000 residential broadband customers by the end of 2005,
    but failed to meet the goal of having one-third of those
    customers served through non-Telecom providers.  Instead,
    only 22 percent of such customers came through the wholesale
    channel.

    ¶8. (U) The government had intended to showcase the
    telecommunications announcement during its annual budget
    release on May 18.  However, news of the Cabinet's decision

    WELLINGTON 00000344  002 OF 002

    was leaked to Telecom within hours of the decision.  So, the
    government made the decision public soon after Telecom called
    Minister Cunliffe and told him it had the Cabinet paper.  The
    announcement delivered on one of Telecom's dire predictions:
    Telecom's stock price dived 7 percent in after-hours trading
    in Australia.  It continued its decline May 4, falling 9
    percent since its May 3 close to NZ $5.06 (US $3.24) a share
    in New Zealand.

    ¶9. (U) As expected, Telecom -- which controls 92 percent of
    the country's broadband connections -- lashed out at the
    decision, saying it would not boost broadband use and uptake
    and would put its investment in its copper network at risk.
    On the other hand, TelstraClear, a subsidiary of Telstra
    Corp. of Australia and Telecom's land-line rival in New
    Zealand, implied that the decision could prompt it to
    increase its investment in New Zealand.

    ¶10. (SBU) Comment:  The government has come under increasing
    pressure to boost investment in the country's aging
    infrastructure, including telecommunications, roads and
    energy.  With the economy slowing after six years of
    significant growth, the government also is seeking ways to
    strengthen and diversify the economy away from
    agriculture-based commodities.  Increasing its broadband
    performance and stepping up competition in the
    telecommunications sector should help.  Also, by resolving
    the unbundling issue at this time, the New Zealand government
    is acknowledging that it no longer can afford to hold on to
    this bargaining chip for the uncertain possibility of
    free-trade negotiations with us in the future (ref A).
    McCormick

`