Telco Act needs 'fundamental' fix

Technology Minister David Cunliffe hopes to have his proposed changes made by the end of the year. Picture / Mark Mitchell

TelstraClear's unbundled bitstream service deal with Telecom last week underlines the need for changes to the Telecommunications Act, consumer advocates say.

"It shows up a fundamental shortcoming in the act," said Ernie Newman, chief executive of the Telecommunications Users Association lobby group. "A different mechanism needs to be introduced so users are not left stranded in this way, which is what has happened here."

The two companies on Friday announced a one-year deal wherein TelstraClear would resell two of Telecom's UBS high-speed internet services, one with a download speed of 256 kilobits per second and one at 3.5 megabits per second, with both having an upload speed of 128 kilobits.

TelstraClear will pay Telecom a wholesale fee of $26 and $30 per user respectively. TelstraClear would not disclose what it will charge customers for the services nor when they will be available but did say it would be "soon".

The services are slower and more expensive than those granted by a Commerce Commission ruling just before Christmas. The commission, in response to an application TelstraClear lodged in November 2004, ordered Telecom to make available speeds up to 7.6 megabytes at a rate of $27.87.

Telecom said it would challenge the ruling, and TelstraClear, afraid that legal wrangling would keep it out of the market for months, agreed to the speed and price concessions in exchange for immediate services.

The deal, which replaces the commission's determination, will have a number of far-reaching effects.

First, it's good news for TelstraClear as it finally has a UBS product to sell. The company originally opted out of selling UBS because Telecom had too much control over its speed and pricing. But that self-imposed exile has resulted in TelstraClear largely missing out on the broadband market. With the new deal, TelstraClear says it now has 100,000 dial-up customers that can be migrated to broadband.

The deal is also good news for Telecom - when compared to the commission's determination, it's the lesser of two evils. It gives TelstraClear better terms than what was available, but the hit won't be as great as it could have been.

For users, the deal is a mixed bag.

It is good news for business broadband, as there will no longer be a price differentiation between residential and business users, which should mean a big reduction in costs.

Both types of users will also get a faster download speed than is currently available. However, critics say users are still being short-changed when compared with the regulated outcome and when compared with what is available elsewhere.

"It will do nothing for the vast number of business and residential users who are being disadvantaged by speeds that fall well short of the international norm," Newman said.

Keith Davidson, executive director of Internet NZ, criticised the two companies for not taking the opportunity to boost the 128-kilobit upload speed to something more respectable.

"Such a service is still not true broadband and should not be described as such. Comparative countries like the UK and Australia have true broadband. So should New Zealand."

The larger impact of the deal will be felt by other, smaller internet service providers, who were counting on the commission's determination to set speed and pricing precedents.

It would have provided the ISPs with a basis for either their own application to the commission or for a commercial deal with Telecom. But the determination and its legal status are in limbo.

A spokeswoman for the commission said that although the Telecommunications Act encourages businesses to negotiate their own outcomes, "we will be looking at the announcement and the documentation attached to it and looking to see what it means for our processes".

Davidson said Internet NZ's legal adviser was still digesting the deal in an effort to understand where the regulations stood but added it could be back to the drawing board for ISPs.

Telecom spokesman John Goulter said that would not necessarily have to be the case, in that the company would look to work out similar agreements with other ISPs.

"We don't expect that every other ISP would have to reapply for a similar determination. In principle, we think it makes good sense to roll out broadly similar terms to other ISPs as well."

Nevertheless, with the deal replacing the commission's regulation as the precedent setter, Telecom is again in the driver's seat.

The ISPs are more likely to get terms similar to the TelstraClear deal rather than the determination.

That's where changes to the act come in, with observers saying the deal has highlighted several of the proposals Communications Minister David Cunliffe made in September.

One of those suggestions is to enable companies to get quick access to regulated terms and conditions set by the commission where existing contracts are not as good as the regulated service.

This would prevent companies from "contracting out" below a regulated minimum service standard.

In other words, they would be prevented from signing a deal for worse service than what is guaranteed by regulation in exchange for other concessions.

Another of the proposals would enable the commission to enforce its decisions on a multilateral level, rather than on a company-by-company basis.

In the case of the TelstraClear UBS application, for example, the commission's December decision would have been applied to the entire industry and thus applicable to other ISPs.

This is a particularly key issue to fix, Newman says, as present rules allow for the applying party to be bought off, leaving the others "high and dry" - which is what has happened with the TelstraClear deal.

A spokesman for Cunliffe said the minister was still on track with his plan to amend the act, with an aim to having his bill passed by the end of 2006.