0867 scheme protection from traffic

By ROD ORAM and RICHARD BRADDELL

Telecom says it introduced its controversial 0867 scheme for internet calls to prevent its network from being swamped by traffic "artificially generated" by some of its competitors.

The heavy traffic could damage it in two ways: its network could come to a grinding halt; and its profits could be seriously reduced by interconnection fees it would have to pay its internet competitors, it says.

The full reason for and impact of Telecom's decision announced last year to introduce 0867 is only now coming to light as Telecom fights attempts by i4free, a start-up company, to offer free internet access.

The 0867 system was designed to solve two problems Telecom had managing its network, says Bruce Parkes, the architect of the scheme and Telecom's current head of government relations.

First, internet calls in New Zealand have grown faster than Telecom forecast. Three years ago they were less than 10 per cent of all traffic; by mid-1998 they were 20 per cent; and this February they passed 50 per cent.

New Zealand is the first country in the world, Telecom believes, where there is more internet traffic than voice traffic.

"We've never said the demand is too much," says Mr Parkes. "Telecom has nailed its strategic future to being an on-line company."

But the fast-rising volume created a network management issue. Such is the set-up of Telecom's exchanges and network which meet international standards, it has only limited traffic control over existing seven-digit local numbers.

If an internet service provider had a technical problem which stopped its customers logging on, then repeat dialling by the customers' computers could jam up the exchange. Telecom says it has little ability to block the calls before they hit the exchange.

However, it has an intelligent network superimposed on the basic network. Calls beginning with 08 and 09 are automatically routed on to the intelligent network, giving Telecom more traffic control.

Second, Telecom has a problem with charges for interconnecting calls between its network and other carriers, particularly Clear Communications. After much litigation and argument, Clear and Telecom finally signed an interconnect agreement in 1996 which expires this December 31.

If a Telecom customer calls a Clear customer, Telecom pays Clear 2c a minute to complete the call - and vice versa - although Telecom also takes another 1c a minute in what is regarded as a payment for its Kiwi Share obligation. It has similar agreements with Saturn, Telstra and Vodafone.

Voice calls between networks tend to balance out. But internet traffic is another story - almost all calls are from users to internet service providers such as Clear.net and i4free.

If, for example, a home computer user is a Clear Net customer, the call would likely originate on a Telecom local line and is then routed to Clear's network. Telecom pays Clear 2c a minute to complete the call.

Given the one-way nature of internet calls, Clear and other carriers were getting substantial and fast-growing revenue from Telecom.

"We put it [the interconnect agreement] in place in a voice world. The full potential impact of internet traffic on the network was not realised," Mr Parkes says. Recent agreements with other carriers have addressed the imbalance.

Mr Parkes says that Clear could offer to host an internet service provider on its own network and split the revenue stream from Telecom with the provider. Not only could the revenue stream help fund internet services which were free to customers, but a bigger threat loomed: the longer a user stayed on a non-Telecom network, the more money Telecom would pay out.

If a customer was permanently on line, he or she would rack up more than 700 hours of use in a month, costing Telecom more than $840 in interconnect charges per line. Worse, Telecom believed providers would go beyond free access by offering to pay customers, say $100 a month, to use the internet - with Telecom footing the bill.

Telecom believed Clear, by offering to split the revenues with providers, was in effect paying them "to generate artificial traffic," Mr Parkes says.

"We realised that around August-September of last year. Providers were saying 'how much will you pay us to complete calls with you?'"

Mr Parkes says that if providers had started to offer pay-you-to-surf deals, "the logical consequence, forecast by our network engineers, was a doubling or quadrupling of network traffic in months." If that happened, "we couldn't maintain security of supply."

Telecom believed the 0867 service would solve its problems. If it persuaded providers to move from seven-digit numbers to 0867 numbers, it could better control the traffic. Moreover, the calls would be outside interconnection agreements so no money would change hands.

To make the switch palatable, it pledged to the Government that 0867 calls would remain free and that their quality would be as least as good as the old numbers. It also paid providers for the cost of transferring and pledged to treat 0867 users in exactly the same way as users on Telecom's own internet service, Xtra, on 0873 numbers.

But Telecom angered many internet users by ramming through the change, by failing to explain its real agenda with regard to interconnect charges and by charging 2c a minute after the first 10 hours a month to users of providers which refused to move from seven-digit numbers. Clear held out and is reimbursing its customers for the Telecom charge.

Clear took revenge this week with the start-up of i4free which has outflanked Telecom's 0867 strategy. Calls to i4free originate on 0867 lines so Telecom still has traffic control. But a call divert feature transfers them to Clear's network so Telecom is faced with paying interconnect charges.

Telecom argues that i4free raises again the threat of free or paid-to-surf service at its expense, coupled with the threat of high volume swamping Telecom's Airedale St exchange in Auckland.

Telecom's second fear is misplaced because the calls originate on 0867. Telecom has used its traffic control powers to severely restrict the number of calls routed into i4free.

Clear makes no bones that it has a revenue-sharing agreement with i4free, but is seemingly unrepentant since it also pays a high proportion of its revenue in interconnection charges to Telecom to support its toll business.

Clear's spokesman, Ross Inglis, says: "What you have got is that the big guy has been monstering the little guys and he's been caught out and he's trying to do anything to shift the blame."