Between the lines - Telecom's woes have come home to roost

By ROD ORAM


Usually, only chickens come home to roost. But in Telecom's case, a thumping great albatross has perched on its network. Telecom deserves no sympathy. It laid the egg and raised the chick into a bad-tempered bird.

But take no pleasure watching Telecom squirm. The issues go to the heart of Telecom's fractious relationship with competitors and the incompetence of our telecom regulation.

Not only is the row seriously hindering New Zealand's internet development, it threatens the working - so Telecom claims -of its Airedale St exchange, a key Auckland facility crucial to the nation's economic life.

The egg Telecom laid was its 1996 interconnect agreement with Clear Communications. The pact was fatally flawed because it failed to anticipate that the internet would undermine its economics to Telecom's great cost, as an article on E3 analyses.

By the middle of last year, Telecom could see only a doomsday scenario - Clear and allied internet service providers would pay surfers to use the net with interconnect payments from Telecom funding the fun. When internet use exploded, Telecom's profits and the nation's phone system would collapse.

But in a rational telecoms market, one of two things would happen first. Either the players would acknowledge the problem and find a solution. Or if they failed to do so, a government regulator would bang their heads together.

Not so in New Zealand. Telecom is so arrogant it could not publicly confess its problem; Telecom and Clear's relationship is so bitter and twisted Telecom considered talks a non-starter; and there is no regulator.

So Telecom unilaterally imposed its own solution, its 0867 service. Technically, it's a good one because it allows better traffic management. But Telecom is the big beneficiary: 0867 lets it wriggle out of the self-inflicted financial damage of its Clear agreement.

Every step of the way Telecom's manoeuvres have smacked of self-interest. For example, it rammed through 0867, using a 2c a minute penalty charge as a prod to herd users on to its network.

Telecom has shown its true colours this week in its dealings with i4free, a startup offering free internet service. Until the courts slapped an injunction on it Telecom was trying to shutdown i4free because its heavy traffic threatened the Airedale St exchange. Yet, it offered no evidence.

Telecom's real motivation seems to be the renewed threat of interconnect charges and fast declining cost of internet use. Telecom has everything to play for. It wants to part-float its Xtra internet service which boasts 250,000 customers valued between $1000 and $5000 each.

Most customers of free and nearly free services migrate from existing providers such as Xtra. Telecom is seeing Xtra's value diminish by the day.

Telecom's self-interest is so large and the national impact so high, the Government can't leave this row to a court-room ramble.

It must step in.