Sorting out who's got the wrong number

By PETER GRIFFIN

The country's two largest telcos will each pay $22,500 to test-drive the new Telecommunications Act - a drop in the ocean considering the business that is riding on any decision the Commerce Commission makes.

An important section of the act allows telcos that aren't getting on with Telecom, or each other, to seek pricing determinations - under which Telecommunications Commissioner Douglas Webb would decide what price the companies should be charging for access to each other's networks.

In the case of TelstraClear and Telecom, neither told the other it was throwing in the towel on months of negotiations to go knocking on the commission's door.

It's a sure sign of a dysfunctional relationship when big companies would rather talk to journalists than each other.

TelstraClear wants a cheaper per-minute price for using Telecom's network. It hasn't been paying Telecom's asking price of 2.6c a minute for months.

Instead, it is paying what it thinks is a fair price - a figure it is unwilling to disclose. Telecom has put up with this, but only just.

TelstraClear also wants a better deal on the services it buys wholesale from Telecom - a discount of between 17.5 and 25 per cent would be nice, and in line with international standards, it says.

Interestingly, TelstraClear has indicated it will not be seeking an access determination for wholesale residential services.

It is accepting the "retail price minus 2 per cent" rate outlined in the Telecommunications Act.

"Two per cent is better than the product remaining unavailable," says Rosemary Howard, TelstraClear's chief executive.



How important is all of this?

Millions of dollars in interconnection payments are shuffled between the telcos each year.

The bulk of the money goes in Telecom's direction because it has the most extensive network.

A large portion of Telecom's revenue comes from its "wireline" business - around $2.1 billion in the nine months to March 31 alone. About $86 million of that came from fixed-line interconnection with carriers including TelstraClear - down nearly 20 per cent on the previous nine months , possibly because of TelstraClear's underpaying.

If Webb delivers a decision in a few months that results in a lower interconnection price for TelstraClear, Telecom will make less money from interconnection.

The flip side is that TelstraClear would probably buy more services from Telecom, thereby increasing its wholesale revenue.

Overseas, there are plenty of examples of this. After years of defending its Australian monopoly with an iron hand, Telstra decided that treating competitors like wholesale customers is the way forward.

And now is an opportune time to shake the tree - interconnection is a hot topic.



Telcos met in Wellington this week to discuss interconnection pricing, which will ultimately be set for the whole industry by the commission after a period of consultation.

On this issue there is much division, as a look at the companies' submissions on the Commerce Commission's website, www.comcom.govt.nz, shows.

Telecom produces a report from the research group Ovum claiming that its interconnection asking price of 2.6c a minute is in the middle of a range of those in comparable countries and American states.

Ovum executive Jim Holmes said Telecom's current rate put it on par with the state of Nevada - which he said was comparable to New Zealand because it had a similar mix of densely populated patches and rural areas.

But ominously for Telecom, the commission produced research as part of a discussion paper on interconnect benchmarking which puts the price range in comparable countries at between 0.14c and 1.4c.



If commissioner Webb sets the industry price too low, it will discourage new investment in telecoms infrastructure because Telecom's competitors will be happy to ride off its network.

If he settles on a high price, Telecom's monopoly will remain largely impenetrable and competition will wither.

A related issue is the $40 million that Telecom claims TelstraClear owes and "tens of millions of dollars" that TelstraClear believes it is owed by Telecom for years of over-billing.

The commissioner won't be stepping into that quagmire at this stage.

The other issue for Telecom and its rivals is how much they are expected to contribute under the telecommunications service obligations - which have replaced the Kiwi Share - specified in the act.

Some of Telecom's rivals complain that the substantial loss Telecom claims to make on providing services to unprofitable customers is already passed on to them through inflated interconnect prices.

They are willing to contribute as long as there is no "double billing".

In December, Telecom sent bills to its competitors asking for at least $36 million towards its Kiwi Share losses.

Another submission process is now under way to get industry views on the telecommunications service obligations.