KEY POINTS:
Telecom's competitors are paying the company $66,501 a day to service hard-to-reach rural customers under a deal signed with the Government, but they say they can reach the same customers with their own networks and should not have to pay the subsidies.
Telecommunications Users Association head Ernie Newman described the subsidies announced by the Commerce Commission as "economic and commercial absurdity, and grossly unjust".
"Many of these customers could be served at a profit by the other carriers. So these carriers are hit twice - they cannot compete to service these customers because Telecom gets a subsidy they don't. Then, to add insult to injury, they have to contribute to the subsidy."
The Commerce Commission yesterday released a draft determination of the telecommunication service obligations (TSO) - the agreement made when Telecom was privatised 17 years ago to guarantee free local calling in all regions - for the years ending June 2005 and June 2006.
The determinations - $71.4 million in 2005 and $78.3 in 2006 - are the commission's assessment of the cost Telecom incurs meeting the TSO.
Some 69 per cent of the cost would be borne by Telecom and the remainder by other operators, primarily Vodafone and TelstraClear, the commission said.
"It's a ludicrous piece of economic nonsense," said Newman, citing the lack of contestability for the subsidy.
Newman said the TSO imposed an unfair cost on new entrants and distorted investment in alternative network technologies because only Telecom's fixed line network qualifies for the subsidy.
"When entrants are collectively writing out cheques for 60 something thousand dollars a day as a tax for them to pay into Telecom's profit then that's actually setting competition backwards."
BayCity Group's Farmside brand provides broadband services exclusively for rural customers.
Managing director Tony Baird said it expects to launch voice service for rural customers this year.
BayCity, based in Timaru, uses satellite transmission and Kordia's network to provide broadband to those unable to access high speed internet via Telecom's network.
The company signed a 12-year, $100 million deal in April with satellite-owner Ipstar which will allow it to deliver phone and internet to between 40,000 and 60,000 customers.
"Under the current rules we would get a levy placed on us to service Telecom's uneconomic lines and we're actually servicing them. We shouldn't have to subsidise Telecom to compete with us," Baird said.
In a Business Herald interview Vodafone chief executive Russell Stanners called the TSO "complete bollocks. The TSO is just a simple tax on competition."
Telecom's Mark Ratcliffe said the TSO "was designed in a world of 1991 - pre-internet, pre-broadband, pre-mobile - and the world has changed. It does require, we would think, quite a fundamental re-look."
TelstraClear's regulatory group manager Chris Abbott described the draft decision as "suprising". Shares in Telecom closed down 1c at $4.61.
