Comcom trashes Telecom numbers

By PETER GRIFFIN telecoms writer

The Commerce Commission has rejected Telecom's methods of calculating the cost of meeting its Kiwi Share obligations.

The commission now expects to come up with the magic figure in August.

It said Telecom's calculation model was of "limited value" to it in calculating the Kiwi Share.

Under the Telecommunications Act, the losses Telecom faces in fulfilling its obligation to provide basic telephone and internet services nationally will be divided among the telecoms industry based on market share.

Telecom's latest estimate of the Kiwi Share, from the act's inception in December 2001 to June 30 last year (the end of Telecom's financial year), was $170 million, or about $356 million annually.

That figure was arrived at after the commission rejected Telecom's earlier calculation of $226.5 million for the six-month period.

The difference in estimates comes down in part to the return on capital Telecom expects to make on its network investments.

The lower figure was calculated assuming a return on capital of 8.2 per cent, as suggested by the commission.

The manager of the commission's network access group, Osmond Borthwick, said Telecom's method of counting its loss-making customers was flawed.

"It comes down to whether you're calculating the cost of those customers or all customers in the access network.

"The difference between those two is quite substantial."

The commission also felt Telecom's calculations did not reflect the workings of an efficient network, but one with historical costs built in.

"That results in high network costs because of inefficient network routing," said Borthwick.

The commission also disagreed with benchmarking Telecom had undertaken with telcos overseas and noted that Telecom had factored in costs associated with existing lines that were not in use yet.

What this means is that the figure the commission comes up with is likely to be lower than any Telecom has presented so far.

Telecommunications Users Association chief executive Ernie Newman said the commission had effectively rubbished Telecom's model, and had disregarded "the outrageous claims Telecom has made in recent years about the cost of serving its uneconomic customers".

Telecom's government and industry relations manager, Bruce Parkes, said there was a risk the commission's "bottom-up" approach to making the calculation was unrealistic in practice.

"It's like saying, 'I can build a house for $50,000', and finding when you get out there to build it, it's a bit more expensive".