Report highlights Kiwi Share rift

By PETER GRIFFIN telecoms writer

The release of a new economic report has highlighted the rift in the telecommunications industry over the Kiwi Share - the law binding Telecom to provide basic services throughout New Zealand.

A key bone of contention is the ability of Telecom's rivals to tender for Kiwi Share contracts - something Telecom is determined to prevent.

A Vodafone-commissioned report by the New Zealand Institute of Economic Research says the Kiwi Share is doing the country more harm than good.

Telecom claimed it lost $356 million in the year to June 2002 servicing pockets of uneconomic customers as part of its Kiwi Share obligation.

But the Commerce Commission put an annualised figure on Telecom's loss of just $73.5 million.

The chasm between the figures comes down to the cost of capital percentage used in adding up the loss. Telecom and the commission are at loggerheads over which figure to apply.

Telecom's latest estimate of the Kiwi Share's cost is $344 million for the year to June.

While competitors are required to contribute to the cost based on their share of the market, the institute says the levy undermines the potential for competition in provincial and rural areas, a factor that will see the country lose out in the long run.

The report suggested that the abolition of the Kiwi Share could see New Zealanders lose their unmetered local calling but that prices for most consumers would not rise.

"In the absence of the Kiwi Share, we would expect line rentals for a small group of customers to rise [but] for 80 per cent of customers the line rental is likely to fall," the report said.

"Telecom might introduce a cap on the volume of free calls per customer per month, or might limit free calls to off-peak times."

Telecom's competitors want the Kiwi Share made "contestable", meaning they would have the opportunity to service a portion of Telecom's 56,000 unprofitable customers themselves, lowering their levy contribution. TelstraClear, Vodafone and WorldxChange have expressed interest in doing this. But Telecom has dug its heels in.

It has told industry body the Telecommunications Carrier Forum, of which it and several other carriers are members, that it will not participate in a proposed report on revising the Kiwi Share obligation, if it looks at making it contestable.

Telecom's head of industry and Government relations, Bruce Parkes, said the Kiwi Share obligation had already undergone a huge overhaul and should be left alone to "let the dust settle".

Vodafone's Government relations manager and forum representative, Roger Ellis, said he wanted a ministerial inquiry into the Kiwi Share. At the least it should be made contestable - as it is across the Tasman.

Communications Minister Paul Swain said the ministry was "assessing the merits of introducing contestability" but that there were no plans to change the shape of the Kiwi Share obligation.

The Kiwi Share

* Provided for in the Telecommunications Act 2001, the Kiwi Share deed or TSO (telecommunications service obligation) provides for:

* Free local calls, including standard calls to the internet and fax calls.

* Provision of basic internet access to nearly all New Zealanders.

* Requires Telecom to meet detailed measurements of service quality.

* The costs of the Kiwi Share are split by market share among industry members.