How does the splitting of Telecom NZ increase competition and lower price for consumers?

Question

I'm having trouble getting this. Telecom may have been split, but they still own the lines do they not? So what's the difference? How would this increase competition and decrease the price? The industry was oligopolistic to begin with wasn't it?

Only qualified answers please. ie if you know your economics.

Thanks.

Answer 1

BT in the UK was split up into 5 different companies years ago. The same thing happened, it opened up the competition.

Collectively, BT was big enough to see off any threat to their monopoly. When they were split up, individually they never had the same financial clout. In order to make money, their lines were leased out to other companies in the name of competition, BT were getting the money they needed to maintain their profits and the other companies were offering dirt cheap lines to attract people in. If they got enough in, they could maintain their low prices. If not, they could only sustain this for so long before raising their prices. I hope this helps.