Time running out for 0867 agreement

By CHRIS BARTON

After 3 1/2 months of negotiating, Clear and Telecom have failed to find accord on a new interconnect agreement that would settle the long-running dispute over 0867-prefixed internet dialling.

A truce called by the parties expired yesterday with the matter still not resolved and spokesmen for both Clear and Telecom were unable to give details about what would happen next.

Both firms said negotiations were continuing and it was likely the terms of the truce would roll over for another month.

But legal action planned by Clear and free internet provider i4free this month may throw a spanner in the works. One of the terms of the truce was that Clear would put on hold its interim injunction against Telecom over the 0867 internet dialling scheme, which had been set down for hearing on May 24.

It had also put on hold an application to have its case heard alongside i4free, which won an interim injunction in April preventing Telecom from disconnecting i4free customers.

Clear goes back to the High Court at Auckland on Wednesday, along with i4free, and will seek an adjournment as it applies to the court at Wellington to have both cases heard with the Commerce Commission's case against Telecom.

The Commerce Commission's action against Telecom begins on September 11 with a directions conference before Justice John Wild. In its statement of claim the commission contends that Telecom's introduction of its 0867 package was a use of its dominant position that was designed to prevent or deter competition by internet providers and telcos in the wholesale and retail internet access markets, and in other telecommunications services.

Clear communications manager Ross Inglis refused to comment on the pending court action, saying Clear was aware it could join the i4free and commission claims but it preferred to settle the matter by negotiation.

But i4free lawyer John Land of KPMG Legal said Clear made an application to the High Court at Auckland yesterday to have both cases joined with the commission's in Wellington.

He said the reason for the application was the similarity of the evidence in all three cases and the case management efficiencies of having them heard together. "I haven't received instructions from my client [i4free] on this yet," said Mr Land. "We're still working through what our attitude to that will be."

The 0867 issue dates back to November when Telecom introduced a scheme to move all residential internet dialling numbers to an 0867-prefix, ostensibly to prevent overloading on its network.

It later admitted that the scheme had a second purpose, to negate the "perverse incentives" resulting from an imbalance in termination payments it was having to make to Clear. The payments are a result of an interconnect agreement struck between Clear and Telecom in 1996 which compensates for the costs of transferring calls from one network to another.

In 1999 that resulted in Clear paying Telecom $73 million and Telecom paying Clear only $18 million.

But the rise of free internet access using Clear's network has created what is known as a "call sink" - internet users starting off on Telecom's network but terminating their calls, usually of long duration, on Clear's.

Mr Inglis says rapid growth in customers using free internet providers zfree, i4free and freenet, which all use the Clear network, has seen this traffic increase 20 per cent a month.

The Business Herald estimates this could result in Telecom having to pay Clear about $40 million in interconnect payments over a year, more than double what was paid last year.

Neither Clear nor Telecom would talk about the sticking points to reaching a new interconnect agreement, but it is believed termination payments are at the heart of the issue.

Telecom recently struck a new "bill and keep" interconnect deal with Telstra which effectively did away with termination payments.

In its submissions to the Telecommunications Inquiry, which is due to report to the Government at the end of this month, Clear has indicated that that sort of deal does not work for the services it offers. It has always argued that Telecom's interconnect payments of around 3c a minute are far too high.

It points to Australian termination payments of $A1.7c a minute, reducing next year to 1.5c, as as an example of what should be charged in New Zealand.