Internet access stalemate between Telecom and TelstraClear broken

TelstraClear has cut a deal with Telecom over high-speed internet access in a bid to avoid a long-running legal battle that could keep it out of the market for months.

The two companies yesterday announced a deal centred around Telecom's Unbundled Bitstream Service (UBS), which also included phone services, calling interconnection rates and a pricing settlement.

Telecom will supply TelstraClear with two UBS services - one with a download speed of 256 kilobits per second and one at 3.5 megabits per second - at prices of $26 and $30 respectively. The plans will apply to residential and business customers.

The services are more expensive and slower than those mandated by a Commerce Commission decision in December, which would have given TelstraClear unconstrained speeds of up to 7.6 megabits per second at a price of $27.87.

Telecom was to institute the regulated service by June, but the company indicated it would challenge or appeal against the ruling.

The deal takes effect immediately and replaces the commission's ruling.

TelstraClear spokesman Mathew Bolland said the company made concessions to avoid being left out of the market for even longer. TelstraClear has 100,000 basic internet customers who have been denied high-speed access.

"This is a way of saying we can get there more quickly and with more certainty. We just have to get on with it," he said. "This doesn't mean we're going to go quiet on things like unbundling [Telecom's local loop]. The difference is we'll be selling things while we're talking about it."

Bolland could not say when TelstraClear would begin selling the services or at what prices they would be offered to consumers.

Telecom spokesman John Goulter said the deal was appealing because it allowed the company to solve a number of long-standing issues it had with TelstraClear. The UBS portion was also preferable to the regulated alternative, he added.

In other terms of the deal, Telecom will also provide TelstraClear with an improved margin for its resold phone line services, up to 5 per cent from 2 per cent. Margins on other wholesale services, such as toll calls, will also improve to 18 per cent from 16 per cent.

The cost of connecting phone customers between TelstraClear and Telecom's networks will also drop to 1c a minute from 1.13c.

Telecom will also pay TelstraClear a one-time $17.5 million settlement for several "long-standing commercial issues", primarily involving the backdating of pricing.

The agreement casts uncertainty on arrangements between other internet service providers and Telecom. The Internet Service Providers Association of New Zealand (Ispanz) had been hoping the TelstraClear regulation would act as a precedent with which its 25 members could get more favourable terms from Telecom.

David Diprose, Ispanz president and general manager of regulatory affairs for No 3 ISP ihug, said he could not understand why TelstraClear would capitulate to Telecom.

"I'm appalled that TelstraClear has agreed to this as it's taking us a step backward," he said. "To accept it as the alternative to what should have been full-speed for a cheaper price than what they're now going to get, why would TelstraClear agree?"

Goulter said Telecom would probably offer ISPs the same terms as TelstraClear was getting.