Broadband users were close to overtaking dial-up subscribers as 2007 drew to a close, with changes and challenges in the telecommunications industry clearly indicating the development of the Internet in New Zealand had reached an important watershed.

However 750,000 fast Internet subscribers was still a fat chance away from the two million needed to hit the Government’s target of entering the top half of the OECD broadband statistics by 2010. 

The Telecommunications Amendment Act of December 2006 had firmed up plans for local loop unbundling (LLU) allowing competitors full access to Telecom’s network, forcing the split of the company into network, wholesale and retail arms. The operational separation of Telecom was to be completed no later than 31 March 2008.

While there had been speculation it might sell off its network division, new boss Paul Reynolds soon cleared that up, saying Telecom was "fundamentally a communications business” founded on running a network, and there were no plans to change that.

According to IDC Research, Telecom had migrated 605,000 or 71 percent of its Xtra customers to broadband by the end of June, with 238,000 left on dial up. Telecom had already opened up the throttle on wholesale broadband for Internet service providers (ISPs), who could now offer the maximum speeds the country’s copper cable could cope with.

Competitors, operating on slim margins reselling Telecom’s services, had shifted only 19 percent or 120,000 of their customers to fast Internet, with 502,000 still on dial up. They were eager to introduce wholly independent products and services and waiting on Telecom to make good on its "aggressive" unbundling, which would give them access to 40 key Telecom exchanges by early 2009 at the latest.

ISPs Orcon, Ihug (Vodafone), CallPlus and WorldXchange had already begun deploying their equipment. Orcon for example, planned to provide fast Internet from every open exchange delivering up to 100Mbit/sec speeds in most towns.

While Telecom was gradually taking fibre closer to its customers with the goal of achieving widespread 5Mbit/sec access, there were serious concerns about how quickly it could ratchet up to the next target of 20Mbit/sec. It had backed off plans to invest “hundreds of millions of dollars” to reach this goal when the Government introduced its stern new regulatory measures.
 

Serious investment – possibly several billion dollars - was needed to get the country back on the developed world broadband map, and to achieve equitable access for the rural heartland. Two major surveys warned rapid roll out of fibre optic cabling was the only way to meet the needs of the future, keep up with international business competitiveness and deliver new services such as video-on-demand and IPTV.

Within weeks of the reports being made public, Telecom agreed to accelerate its next generation network (NGN) plans; it would invest $1.4 billion to ensure speeds of at least 10Mbit/sec to 80 percent of New Zealanders and up to 20Mbit/sec to 50 percent of the population by 2011.

The undertaking applied to all towns with 500 or more phone lines and formed part of a legally binding commitment to the Government, with Telecom facing fines of tens of millions of dollars if it failed to comply.

The new telecommunications terrain was expected to deliver a better deal for everyone from early in 2008, with competing carriers offering attractive bundles of services including home line, mobile, on-demand movies and more affordable broadband Internet.

Meanwhile there was growing pressure on the Government to step in and take the lead by encouraging more private sector investment in fibre, including making its own billion dollar contribution to get the country out of the broadband doldrums.