Strategic Interaction under Asymmetric Regulation - Adoption, Usage, and Global Impact of Broadband Technologies - page 39

toric pricing strategies and strategising to invoke
the political threat of stronger future legislative
action against Telecom.

bitstream or LLU arrangements was broken. Com-
petitors can now sell Telecom-provided fixed line
voice services as well as ADSL, enabling them to
offer similar pure bundles. By actively marketing
to fixed line customers to induce switching of
the voice account, competitors get access to the
revenues derived from the 'flat rate' connection
and calling bundle. If the customer already has
a broadband account, then the rival gets access
to the surplus of voice revenues over cost that
Telecom previously used to (potentially) subsidise
the (below-cost) broadband account. That is, the
margins garnered over cost for fixed voice line
services are now making it profitable for com-
petitors to engage in the provision of broadband
services, either by resale, bolting on equipment
into Telecom's exchanges (LLU) or providing the
service over their own infrastructures (e.g. cable,
mobile and wireless). These high margins exist
solely due to the historic obligation on Telecom to
offer flat-rate voice telephony tariffs. That Tele-
com charged low ADSL prices in the first place,
thereby necessitating competitor entry into the
fixed line voice market to stimulate competition

Political and Commercial
Consequences

When the Commissioner reported to the Minis-
ter on February 2 2006 that, by the end of 2005,
Telecom had exceeded the target of connections
sold by 11.6%, but only 24.5% of the connections
were sold by its competitors 27 , the government
acted upon its threat. On May 1, the Cabinet voted
to proceed with both full LLU and accounting
separation of Telecom (MED, 2006). On April
5 2007 - some ten months before the first un-
bundled circuit was handed over to a competitor
- the Minister announced that Telecom would be
required to proceed to full functional separation
of its network, wholesale and retail divisions 28 .
As a consequence of the 2006 LLU legislation,
Telecom's ability to forcibly tie a Telecom-provid-
ed and billed fixed line voice calling connection
to a Telecom-provided ADSL line sold by either
Telecom or any other provider under wholesale,

Figure 4. Source data Telecom Management Commentaries