Kiwi Share load angers Vodafone

By PETER GRIFFIN

The Commerce Commission's final number crunching has reduced the cost of the Kiwi Share to the telecoms industry by $7.8 million, effectively cutting subsidisation of the loss Telecom carries in servicing unprofitable customers.

Once again the commission's adjustments, which see the annualised Kiwi Share cost decrease from $73.5 million to $65.7 million, have produced grumblings among the paying parties.

However, apart from Vodaphone, they have vowed to go along and get along.

Vodafone's managing director, Tim Miles, said he was unhappy with the outcome, which he called an outrageous tax on infrastructure competition.

The company saw its Kiwi Share burden increase because of the inclusion of network interconnect revenue. That boosted Vodafone's share of liable revenue to 19 per cent from just under 10 per cent.

The difference is several millions of dollars which has to be paid to Telecom. TelstraClear, on the other hand, saw its market share (and therefore Kiwi Share bill) nearly halve.

Miles said Vodafone was considering its options, one of which was to pursue a judicial review of the decision.

"We argued that interconnection shouldn't be included at all because it's not what the legislation is aimed at. This doesn't reflect what the options available are."

Telecom was pleased that the weighted average cost of capital (WACC), a key component of the Kiwi Share calculation, was increased from 6 per cent to 7.1 per cent.

The Kiwi Share or telecommunications service obligation, as it is now known, is divided up by the market shares of the telcos and factors in some $1.6 billion in revenue from the industry.

In intensive lobbying, it had argued that the WACC figure did not accurately reflect the risk in its business and resented the commission comparing its fixed line business to that of an electricity utility.

"We still believe that's far too low, given the huge changes the industry is going through," said Telecom's head of regulatory affairs, Bruce Parkes, said of the increased figure.

Telecom had optimistically been pitching for a WACC of 11.2 per cent, which was suggested in a PricewaterhouseCoopers paper.

TelstraClear, which will now pay $1.6 million to Telecom as its contribution, said the Kiwi Share, while reduced, would still deliver an "excessive return to Telecom given the low risk of delivering home phone services".

"The setting of a 7.1 per cent weighted average cost of capital will be great news for Telecom, but not for consumers," said chief executive Rosemary Howard.

The main reason for the $7.8 million decrease in the figure was the use of a more efficient model of reaching customers which took into account wireless technology rather than more conventional technology such as fibre-optic cables.

That is because the commission was considering the costs an "efficient" provider would face in providing services, not Telecom with its existing network.

The Telecommunications Users Association welcomed the figure but joined Vodafone in calls for an overhaul of the Kiwi Share, which it sees as penalising competitors.

"It is an absurdity that carriers other than Telecom have to fork out a share of Telecom's costs even though they could, in many circumstances, provide a similar or better service themselves without a need for a community subsidy," said TUANZ chief executive, Ernie Newman.

The contributors to the Kiwi Share - Telecom, Vodafone and TelstraClear are the biggest - have already allowed for the cost in their balance sheets and will face annual payments which the commission will re-calculate regularly.