Free calls mean less broadband - Telecom

By Peter Nowak

Telecom is again blaming New Zealand's poor showing in international broadband uptake rankings on free local calling.

"In a country like NZ where people are getting free local calling, there is more incentive to stay on dial-up and less incentive to move to broadband," a spokesperson said.

"This is a point that has been made in more than one OECD report this year - and one that will need some further consideration by the Government."

The Organisation for Economic Co-operation and Development's latest broadband rankings, issued last week, had New Zealand 22nd out of 30 countries, unchanged from six months ago.

The OECD ranks countries by total broadband subscribers per 100 inhabitants. New Zealand's total base of 283,798 translates into 6.9 subscribers per 100. South Korea was again first, with 25.5 subscribers per 100 inhabitants.

Telecom says customers have the option of moving to faster broadband services, but free local calling creates a disincentive by allowing them to use dial-up for as long they want.

Internet experts call that "a totally ridiculous excuse". Sydney telecommunications analyst Paul Budde says it is Telecom that has the disincentive to spur broadband uptake because it "doesn't do anything for their bottom line".

"It brings costs down, it cannibalises other products ... it's great for the country, it's great for users, it's great for the competition, but it's not good for the incumbent, so that's the problem," he said.

Telecom also said broadband uptake was growing fast in New Zealand, with residential numbers quadrupling last year and 20 per cent of households now subscribing.

Ernie Newman, chief executive of the Telecommunications Users Association, said that while the rate of increase over the past six months was encouraging, it was starting from a very low base. New Zealand still had "a huge distance to go to catch up to the countries we like to compare ourselves with", he said.

Internet experts last week decried the rankings as "shameful", and said Telecom's high prices and poor services were to blame.

But the Telecom spokesperson said that according to the OECD's 2005 Communications Outlook, released in August, Telecom's higher-speed broadband plans compared favourably with other countries, particularly Australia.

The report's figures show Telstra charges the equivalent of US$88.97 a month for 1 megabit per second (mbps) access, but Telecom charges US$30.36.

Telecom says that has resulted in 43 per cent of its customers being on plans with speeds higher than 512 kilobits per second, compared to only 6 per cent for Telstra.

However, Telstra operates under stricter regulations and its wholesale customers have more freedom to offer differentiated products. That means some of its competitors offer much better deals - iiNet, for example, has 1 mbps plans starting as low as US$30. As a result, about 60 per cent of Telstra's broadband subscribers come through wholesalers, as opposed to about 15 per cent for Telecom.

Six months ago, Australia ranked just ahead of New Zealand at 21st in the broadband rankings, but has now jumped to 17th. Industry experts say this is because of a healthy competitive environment there.

Meanwhile, the OECD Communications Outlook itself casts doubt on Telecom's argument that free local calling is affecting broadband uptake. Only two countries in the OECD - the Czech Republic and Hungary - have higher fixed residential phone costs. New Zealand improves only slightly once calling tolls are added, moving to eighth most expensive.

Most tellingly, with the exception of South Korea, all of the top five countries in broadband uptake have lower residential phone tolls than New Zealand.

Put another way, the Netherlands, Denmark, Iceland and Switzerland all have cheaper residential phone tolls and fixed phone costs - and flourishing broadband uptake.

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