Kiwi Share loss under scrutiny

By CHRIS BARTON IT editor

The Government has rejected estimates of a $185.6 million loss from the Kiwi Share obligation that requires Telecom to maintain a local free-calling option for residential customers.

Replying to concerns by Clear Communications that the estimates "assume an air of authority they do not warrant," Communications Minister Paul Swain said the estimates would have "no standing" in the new telecommunications regime.

"The current Telecom net [Kiwi Share] cost estimates are the outcome of a process that has significant shortcomings, which is the reason the Government decided to put a new regime in place."

In a preview of its oral submissions later this month on the Telecommunications Bill before a select committee, Clear has outlined a number of "improvements."

It supports the funding of any Kiwi Share net loss - as worked out in December when the Government and Telecom revised their contract to have Telecom reimbursed for Kiwi Share losses by other carriers, proportionate to their market share.

But it says Telecom's claims as to the size of those losses "are outrageous, woefully inaccurate and do not comply with their disclosure requirements."

Industry and regulatory affairs manager Grant Forsyth said Clear believed the Kiwi Share delivered a zero result, or possibly a profit.

A 1998 report, New Zealand Telecommunications: The State of Competition, commissioned by Clear, argued that the Kiwi Share imposed no cost on Telecom and that the provision of residential local access generated it yearly monopoly profits of around $116 million.

"There is no question some lines in New Zealand are loss-making, but this is more than offset by profit in high revenue urban areas," said Mr Forsyth.

In calculating the net Kiwi Share loss, he said Telecom was not required to include the retail cross-subsidies from profitable customers.

Though the cost of providing residential lines and the direct revenue from line rentals is included, some indirect revenue, such as second lines and Xtra internet services, is also not included.

Mr Swain agrees: "Clearly there are limitations with the existing [pre-reform] Kiwi Share disclosure regime. It was only designed to provide information to help parties negotiate interconnection agreements.

"The disclosure lacks full transparency, does not provide for an independent party to set the cost, or for other parties to comment on the cost during the assessment process."

Under new provisions in the Telecommunications Bill, Mr Swain said Telecom would need to publicly demonstrate what loss had occurred and the new telecommunications commissioner would make a determination on the size of the loss.

"The [Kiwi Share] claims by Telecom have never been properly demonstrated," said Mr Swain.

All carriers would then see what their contribution to funding of the Kiwi Share would be.

Telecom general manager of government and industry relations Bruce Parkes agreed the existing disclosure regime was designed to provide information for interconnect agreements and not for the distribution of Kiwi Share costs.

He said Telecom liked the new proposals, which "would be a much more open and transparent process."

But he rejected as "totally flawed logic" Clear's argument to subtract Telecom's loss-making customers from its profit-making customers in the Kiwi Share calculation.

He said the Kiwi Share obligation was concerned with determining what parts of the network were unprofitable and "what would induce a carrier to pitch for that loss-making business."

Telstra's selective rollout of its cable services in parts of Wellington provided evidence that some suburbs, streets and even individual houses were costly and hard to serve.