Cheaper broadband coming

By PETER GRIFFIN

Telecom has moved a step closer to backing up its claim that this will be the "year of broadband" with three new internet packages but the deals may hurt its resale partners.

An entry-level deal offering download speeds of up to 256kbps and with a 1GB download cap comes in at $40. A mid-grade deal for $50 offers a 3GB cap and a $70 deal offers a 10GB cap with no excess data charges.

For the first two deals, Telecom has peeled back its excess data charges from 20c a megabyte to 5c a megabyte. The previous cheapest Jetstream deal was $65 a month for 128kbps with a 5GB cap.

The catch is that customers have to give all their voice-calling business to Telecom or the deals cost $10 more a month.

That incentive to stay put will make it harder for the likes of toll and internet operators TelstraClear, Slingshot and WorldxChange to lure customers.

The deals will certainly do nothing to improve the economics of reselling the Jetstream services, which some have described as marginal at best.

Martin Wylie, managing director of internet and tollcall operator ihug, said Telecom had merely thrown consumers a few crumbs.

"We have to sell it at a loss, it's classic market squeeze. They're using their market muscle across multiple markets to squeeze competitors."

Jetstream resellers are offered the new Jestream deals at a $10 discount on the retail price, and make their margin out of a separate internet provider fee they charge. Typically it is around $10 a month on the bulk of data-capped broadband offerings.

An industry source said internet providers reselling Jetstream received a discount of less than 15 per cent per customer they signed up.

Telecom's rivals can still get the discounted rate to customers as long as they are using Telecom for their calling, but may have to eat into their own internet charge to remain competitive.

Telecom's head of internet and online marketing, Chris Thompson, said the deals did not change the business case for resellers.

"The economics are essentially the same. They're free to charge the internet provider fee they want."

Thompson said the new deals had never been discussed with the Commerce Commission despite having similar speed characteristics to those mentioned in the commission's revised report on local loop unbundling.

The data caps do not discriminate between local and international internet traffic and, after reaching the 10GB cap on the flat-rate plan, users' access speeds would be throttled back to dial-up speeds.

"It will be dial-up speed, you'll still be able to surf and email," said Thompson.

The rest of the industry is already discounting to attract customers keen to bundle voice and internet services.

Ihug offers a 10 per cent discount a customer can use to lower either the monthly phone or internet charges.

WorldxChange offers its Direct Dial Tolls customers flat-rate, dial-up internet access for $20 a month as opposed to $25 for non-tolls customers.

Graeme Osborne, the chairman of the Telecommunications Users Association, said he was comfortable with the discounted rate Telecom gave its calling customers for internet access.

"It's just a loyalty discount. If it was half price it might be different."

He attributed Telecom's price shift to the stirrings of broadband competition in the form of Woosh Wireless' flat-rate 256kbps broadband offering.

But he rejected Xtra's claim that technical changes had only now allowed the offers to be introduced.

"It's the same underlying technology they were using two years ago. The answer is they didn't have competition two years ago."

The price differential had attracted interest from the commission, which was gathering information to ensure the deal was not anti-competitive.

"It could raise some issues under Section 36 of the Commerce Act which relates to taking advantage of market power," said spokeswoman Jackie Maitland.

Cecil Alexander, director of WorldxChange, was unconcerned about the discount because Jetstream was being superseded by fledgling services. "It's not likely to buy them any loyalty when the new offerings come on line," said Alexander, who has partnered with Counties Power to deliver voice and internet services over a fibre and wireless network in South Auckland.

WorldxChange was conspicuously absent from a group of telecoms and internet providers that yesterday claimed consumers were paying $84 too much a year through lack of competition in telecoms.

Alexander said WordxChange was these days making better progress negotiating directly with Telecom.

Woosh Wireless chairman Rod Inglis said Woosh's coming voice service would strike back at Telecom.

"You'll see our response when we release our voice products.

"We have to roll out as fast as we can to provide real, natural competition."

Woosh still has an edge on Telecom in broadband pricing, offering a $65 flat-rate 256kbps deal. But until it becomes a voice player it, too, faces Telecom's stiff voice incentive.

Inglis was "not interested" in Telecom's rivals' move to band together to generate public support for their unbundling lobbying.

Instead, Inglis had written to Communications Minister Paul Swain, asking for the Kiwi Share to be reviewed and number portability to be introduced.

www.call4change.co.nz