Telecom 'abusing position' with cut-price internet

Telecom's plan to sell broadband internet access to its Xtra customers for less than it charges its wholesale customers is a sign the telecommunications company is continuing to abuse its dominant market position, its competitors say.

Telecom has not confirmed the prices it will charge for unconstrained broadband, but ihug chief executive Mark Rushworth said Telecom planned to offer prices to Xtra customers for high-speed unconstrained bitstream below the price which Telecom charged for wholesale connections.

Ernie Newman, chief executive of the Telecommunications User Association of New Zealand, said "given Telecom's substantial market dominance, to suddenly offer services direct to retail customers without preserving wholesale margins is unacceptable".

Following the Government's decision in May to force Telecom to open its network to competitors - known as local loop unbundling - Telecom said it would co-operate with the new competition regime.

But InternetNZ executive director Keith Davidson said yesterday that if Telecom was taking advantage of its market power it would not be in keeping with Telecom chief executive Theresa Gattung's comments that they "get it" and are now aligned with the Government's direction.

He said Telecom's wholesale customers would not be able to match Xtra retail prices without making a significant loss under its new pricing plan.

The Commerce Commission ruled in June that internet companies must pay $28.04 a month for wholesale net connections for high-speed unconstrained bitstream.

Telecom would not say what it would charge its retail customers when it moves to unconstrained bitstream next month, but has said its entry-level package would remain at $29.95 a month.

The company's competitors say they would not be able to compete with this package because as well as paying the $28.04 wholesale price, they would also need to pay for data caps and meet their own expenses.

Telecom spokesman John Goulter said wholesale customers would be offered a "choice" of reselling Telecom's plans at a discount of between 6 and 18 per cent or the wholesale package.

"The key thing is the [Telecommunications] Commissioner, not us, sets the unbundled bit stream price."

Retail broadband was a highly competitive market, Goulter said.

At the time of the Commerce Commission decision Telecom and ihug's entry-level packages for broadband were $29.95, and Woosh's lowest broadband package was $24.95.

The Commerce Commission said yesterday it would review the UBS price every three months, and had no information that Telecom was proposing to launch a retail service at a price below the wholesale price.