Go easy on phone bill argues TelstraClear

TelstraClear wants the Commerce Commission to err on the side of caution by calculating the cost of loss-making telephone customers too low rather than too high to foster competition.

The Australian carrier presented its submission on the opening day of a four-day hearing on the commission's draft ruling that the cost of the Telecommunications Service Obligations (TSO), an updated Kiwi Share, is $73.5 million annualised.

That is what the competition watchdog calculates is the annual cost to Telecom of supplying a telephone service to non-viable customers, mostly in rural areas.

The TSO cost is to be shared among telephone companies, including TelstraClear and Vodafone, based on their market share.

This week's hearing is the last chance for telephone companies to present their views on the TSO cost, before the commission makes a final ruling, probably in the next few weeks.

A critical issue in the calculation is the return on capital that Telecom may earn in providing telephone services.

The commission's view is that 6 per cent is appropriate for the low-risk service, but Telecom has argued for 13 per cent and will be focusing on this issue when it presents its submission tomorrow.

TelstraClear's industry and regulatory affairs manager, Grant Forsyth, said the higher the TSO, the greater the barrier to competition because telecommunications companies would have to raise prices to cover the cost.

TelstraClear and Vodafone each face paying Telecom about $7 million as their share of the TSO.

A high TSO would benefit Telecom in that it would not only receive payments from other carriers but it would also get the competitive benefit of its rivals having to raise prices to cover their TSO contributions, Mr Forsyth said.

A lower TSO would not disadvantage Telecom, which had a monopoly of customers in several areas.

TelstraClear also took issue with the draft ruling, saying parts of the determination lacked transparency, overstated the difficulty of some terrain in providing a telephone service, and failed to consider alternative technologies such as wireless for high-cost areas.

For TelstraClear, Suella Hansen, a principal of telecommunications economics specialists Network Strategies, said there was little transparency in the commission's model on revenues.

Business revenues appeared incorrect.

TelstraClear made three adjustments where it could quantify them and came up with a new TSO figure of $50.3 million, she said.

But it also had other concerns that it could not quantify for lack of information about revenues.

Telecommunications Commissioner Douglas Webb questioned TelstraClear's comparisons of TSO costs in Australia.

He said TelstraClear needed to unbundle the points of difference between New Zealand and Australian TSO costs for them to be useful.

- NZPA