Study after study has concluded that in the sphere of telecommunications, Canadians pay a premium price for a second-rate product. The penetration of 3G mobile networks is lower than in other developed countries, broadband speed is relatively sluggish, usage limits more restrictive, prices to consumers higher, and not surprisingly, corporate profits are very robust indeed. Pitting dominant telephone companies against dominant cable providers has turned out to be a poor way to get the competitive juices flowing.

Efforts by the CRTC to restrain the power of the telecom/cable oligopoly in this country have been half-hearted and ineffectual. Just take a look at the growth in dividends in this cozy group over the past five years: Telus and BCE’s dividends are up about 42 percent, while the payout from Rogers has skyrocketed by 787 percent. Meanwhile, new entrants with any degree of success seem to get gobbled up, as with Rogers’s takeover of Microcell’s popular Fido, while Telus absorbed Clearnet.

New Zealand is another highly developed country that has lagged in the area of high-speed Internet access. It has similar disadvantages to Canada, but in a more severe form — i.e., its population is much smaller and it is geographically remote. Like the CRTC, NZ tried to foster competition by forcing Telecom New Zealand, the dominant incumbent carrier, to lease access to its network. It’s a method that never seems to satisfy anyone; the carrier carps about a meddlesome regulator, while the upstart retailers complain about an uneven playing field.

The NZ government decided to take a more decisive approach. If NZT were split into two parts — one holding the backbone of the hardware network, the other with the retail end and customer accounts — then new entrants would pay identical access fees and compete head to head on a fairer basis. This policy has been executed with a plan that is more carrot than stick.

The Ultra-Fast Broadband (UFB) Initiative is a program of public subsidies for companies to build an Internet pipe to provide nearly all Kiwis with high-capacity access to the Internet. The hitch is that only companies that are not vertically integrated were allowed to bid for the work.

NZT’s top management wasn’t enthusiastic about breaking up the company, but its hardware division was keen to get in on building a critical piece of infrastructure. It was during this difficult period of uncertainty that NZT was added to the VP Portfolio in December 2010 at $7.79. The shares trade as an ADR on the NYSE, with each receipt equivalent to five shares on the Auckland exchange.

Two months ago, the complex procedure of separation was finally completed, with shareholders receiving shares in Chorus. It was disappointing that the ADR got stuck on the Pink Sheets, but volume has been brisk and the bid/ask spread is far more reasonable than for most of the denizens of this colourful over-the-counter backwater.

At this early stage it is tough to evaluate the two new business entities that have replaced old NZT, but the sense here is that Chorus is more leveraged and a riskier bet. Laying thousands of kilometres of fibre will take years, and that will require a lot of capital.

The new NZT — consisting of the retail business, the mobile service and a 50 percent stake in the submarine fibre that links New Zealand to Australia and California — looks to be in good financial shape, with revenues of over $5 billion (NZD). The company’s policy of passing 90 percent of earnings to shareholders will be maintained; this has proved to be a lovely cash spinner over the past couple of years.

In an oligopoly, a gain for consumers is made at the detriment of corporate profitability. In a freely competitive market, that trade-off also exists, but other benefits accrue to a society that is encouraged to use such an important technology. A healthy, competitive industry leads not only to greater innovation, but profitability that is decent, though not excessive.

It will take time to judge the results of New Zealand’s interesting experiment, but if consumers end up with more bang for their wired buck, Canada would do well to review its options.