Finding set to cost Telecom 'millions'

A Commerce Commission draft determination to cut interconnection prices is set to cost Telecom millions of dollars each year.

The commission review, applied for by TelstraClear and Telecom, examined the interconnection price payable by the carriers for handling calls between the two networks.

The report aims to reduce the present cost of 1.13 cents a minute to just 1 centc a minute for the period dating from June 2002 up to the date of the commission's final determination, which is expected in July.

The companies would have to reimburse each other for previous overpayments.

A spokesman for TelstraClear said the reduction would save the company several million dollars each year.

He added that 1 cent a minute was still a conservative figure but was "pleased it's moving in the right direction".

But he said customers were unlikely to see reduced bills.

"Because when you have been paying such a huge amount for so long and you get more realistic pricing you tend to just compete strongly rather than be able to hand it on."

A challenge by Telecom to the scope of the commission's authority to conduct the pricing review and set a timeframe for its decision was dismissed last week in the High Court at Auckland.

Bruce Parkes, Telecom general manager for Government and industry relations, said the company was trying to "establish the rules of the game".

"The idea of back-dating three years we think is pretty hopeless for commercial planners who are trying to set budgets and make commercial decisions on pricing."

In November 2002 the commission used international benchmarks to cut interconnection charges from 2.6 cents a minute to 1.13 cents.

On November 15, 2002, Telstra applied for a commission review with the aim of further reducing costs.

Telecom also applied for a review on November 26 - not because it wanted lower prices but to ensure it had a voice in proceedings.

Parkes said Telecom would continue to fight its corner during submissions in May.

Ernie Newman, chief executive of the Telecommunications Users Association of New Zealand, applauded the commission but said the time taken to reach a decision had already driven many competitors out of New Zealand.

It had taken a long time to get to this point compared with other countries.

Telecom's shares dropped 4 cents to $6 yesterday.

Interconnection

* What is it?
The price per minute paid by one carrier to another for handling phone calls between networks.


* How much does is it cost?
Currently 1.13 cents a minute between the networks of Telecom and TelstraClear.


* What is it worth?
A Commerce Commission proposed reduction to 1 cent a minute would save TelstraClear several million dollars each year.