Between the lines - Price pact hinders access to internet

By RICHARD BRADDELL

"It's dance-around-the-maypole time for me," the previous Government's communications minister, Maurice Williamson, enthused when Telecom and Clear announced they had agreed on principles for interconnection late in 1995.

If unedifying, the spectacle of a Morris-dancing Mr Williamson is nothing as awful as the unequal and deeply flawed agreement finalised in March 1996 that is the father of the dispute between Telecom and internet aspirant i4free.

To understand why it was so bad calls for examination of its pricing structure. The basic principle of interconnection is that the telephone company which delivers a call to another network pays the recipient to complete it. So if Clear delivers a call to Telecom, it pays the latter, and vice versa.

Calls between two local networks might be expected to roughly balance out. But even if they do, the present interconnection agreements leave Telecom well ahead.

In the first year, Telecom is paid twice as much per minute of each call delivered as it pays the new entrant. And it is only in the fifth and final year, in Clear's case, that the amounts are equal. Clear and Telecom would now pay each other 2c a minute on peaktime calls.

But the agreements also give Telecom another 1c a minute, apparently to cover its Kiwi share obligation to operate in remote and unprofitable localities.

One consequence is that, because new entrants effectively pay Telecom three times more at the outset than they get for the same service, they have every reason to take time getting into business until the revenue streams move closer to parity.

And if the interconnection environment has been a dampener on competition, it has also ensured that the industry remains as fractious as ever.

Within months of signing, Telecom and Clear were again at each other's throats in a dispute over non-payment. It will take years to resolve and will be decided on the application of obscure economic principles to competition law.

The latest row between Telecom, i4free and Clear is more straightforward. It will turn on the effectiveness of two contracts - Clear's number portability and interconnection agreements with Telecom - and their ability to circumvent Telecom's unilaterally imposed 0867 regime, which would deprive Clear of interconnection revenue on internet calls.

Clear seems to be on strong ground. The trouble is that the number-portability arrangements it has invoked are very network inefficient and Telecom's cry that they could have serious consequences to its network may not be ill-founded.

For all that, if i4free and Clear win, the problems are largely of Telecom's making and it does not deserve to be let off the hook easily.