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Telecom's wholesale customers ihug and CallPlus say they have spent millions trying to fix major problems on their network in the past few months.
Thousands of their customers have lost their connection to the internet for periods sometimes lasting hours.
CallPlus and ihug said the problems were occurring on the wholesale broadband service Telecom provides called unbundled bit-stream service. The outages began about six months ago but had become worse in the past few weeks.
Internet Service Providers Association of New Zealand president David Diprose said Telecom's network appeared to be failing to cope with the increasing demand for broadband.
Mark Rushworth, chief executive of ihug, said his company had spent $500,000 on enabling its network to support the large numbers of customers who lost connection with the internet and tried to reconnect all at the same time. Ihug had increased call centre staff by 20 per cent and compensated some customers with credit notes.
"It has been a huge cost for us. We have been constantly recruiting staff to handle calls."
Ihug was fortunate that it had the financial support of its parent group Vodafone to invest in the network problems, but the long-term damage to its brand and reputation could not be calculated.
Ihug had asked for compensation from Telecom but was "not holding out for it".
The company would struggle to offset the extra investment required to repair the network because it was already operating on thin margins in supplying broadband.
CallPlus chief executive Martin Wylie said the company spent "millions of dollars" to manage the customers in the call centre and on fixing network problems.
"The industry is trying to absorb it, which is putting more pressure on companies that are already finding the going very tough.
"We are making a loss on every broadband customer and the technology that Telecom provides is not performing, which forces us to put in more investment to compensate and put more staff on."
Scott Bartlett, Orcon's regulatory manager, said Orcon had not been affected by Telecom's network problems.
"It's too easy to blame Telecom and it's one of the oldest tricks in the book."
Telecom head of wholesale Matt Crockett said the company first alerted customers to the problems in mid-September and within five weeks had fixed 95 per cent of the problems.
"We struggled to get to the root cause, but we did isolate it and fix it."
Telecom accepted that it needed to do more work on its wholesale service and would continue to work with wholesale customers to avoid problems in the future.
"There are going to be issues around a fast-moving market and complex technology like broadband. None of us are happy with the experience for our end users in the past few months."
