Between the lines: Big two clean the slate

To liken Telecom chief executive Theresa Gattung and her new counterpart at Clear Communications, Peter Kaliaropoulos, to lovebirds would be licentious. Nevertheless, yesterday they had plenty to coo over.

For the first time, it can be fairly said that competition between the two rivals has moved from the legal to the marketing department.

To get there, they have bridged some enormous differences which became all the more stark when considered in the light of the interconnection deal Telecom completed with Telstra Saturn in July.

Telecom's view that the Telstra Saturn agreement would become the template for the rest of the industry was an argument that would never suit Clear, given its totally different business model.

In essence, Telstra Saturn's deal did away with interconnection payments, except for long distance calling (known as toll bypass), in which Telecom delivers rival operators' toll calls.

The reason for excluding toll bypass is that it is a service to be charged for because the benefit conferred is unlikely to be reciprocated. That was not a huge issue to Telstra Saturn since its reliance on Telecom to deliver tolls is matched the other way.

But Clear, with limited local network, would have been left high and dry as toll margins continued to erode while interconnection costs remained high.

This year it attacked its interconnection problems through clever exploitation of the internet, by locating free internet service providers on its network to attract calls from Telecom subscribers.

It was an arrangement that hardly reflected the underlying commercial benefit, since Telecom had to pay Clear to deliver internet calls to Clear's internet service providers.

But it did give Clear the ability to claw back at least some of the tens of millions of dollars in interconnection payments for toll bypass that it was paying to Telecom.

It had one other effect. From merely impossible, relations between Clear and Telecom became explosive. In retreating from the brink, Mr Kaliaropoulos can be taken at his word when he says both sides have compromised, although just where the balance lies remains buried in the net $35 million Clear will pay Telecom for interconnection and other services over the next year.

In financial terms, Telecom seems to have forgone some toll bypass revenue, while Clear has definitely given up on its claim for internet termination revenue.

For its part, Clear gets a more certain environment in which to pursue its business, while Telecom lays to rest a dispute that has done little to enhance its image.

One important question: could Clear and Telecom ever have agreed without the telecommunications inquiry bearing down? Telecom will say the agreement simply reflects the market at work, Clear that it was prompted by the threat of regulation. Either way, it was a dispute neither company could sustain for much longer.