Telecom cuts prices - and angers rivals

Orcon chief executive Scott Bartlett

Competition in the broadband market is forcing Telecom to slash its wholesale price, angering rival network builders.

Telecom Wholesale, which sells broadband to other internet service providers, has sweetened the deal for any ISPs taking their business to the telco giant.

Last year the telco announced a cut of 23 per cent off the wholesale price of phone and broadband bundles in the Auckland region for any company taking all its business to Telecom Wholesale - taking the wholesale price from $65 per connection per month down to $50.

Another nationwide deal, announced last month, gives companies a 15 per cent discount on wholesale broadband - cutting the $27 rate to $23 - if 90 per cent of their business is taken to Telecom Wholesale.

The move has angered Vodafone and Orcon, which have invested millions in their own networks, but others in the game are celebrating improved broadband margins.

Vodafone's David Diprose said the price cut for wholesale customers signing up solely to Telecom Wholesale was "pushing boundaries".

He said Vodafone could only take advantage of any discount if it stopped circumventing Telecom Wholesale via local loop unbundling and did not put another customer on its own "Red Network".

"Yes, it is competition at work, but guess what, you can't buy it at $50. You have to pay the whole $65 unless you stop unbundling," said Diprose.

"Everyone else out there can buy it for $50 because they've been loyal Telecom customers, even though we're still buying our service off a different part of Telecom."

Vodafone bought access to Telecom's exchanges for local loop unbundling from its network arm, Chorus, but more than 75 per cent of Vodafone's customers were connected to the broadband service sold by Telecom Wholesale, said Diprose.

Three months after the June launch of its Red Network, Vodafone signed up Slingshot as a wholesale customer.

The deal effectively gave local ISPs three choices to deliver broadband - either resell Telecom's broadband, spend millions unbundling telephone exchanges to run their own service or strike a deal with a competing network.

Martin Wylie, who heads up Slingshot's parent CallPlus, said the response from Telecom Wholesale was the first sign of competition at a wholesale level.

"I think that tipping point has been reached in Telecom's mind which is 'these people will leave and they won't just take one service, they'll take their entire business'," said Wylie.

Orcon chief executive Scott Bartlett is circumspect about the move.

"I can see both sides of it now," said Bartlett. "As someone who has spent the last seven years crying for competition I'm not going to sit here and berate it when it finally comes.

"Should Telecom Wholesale have the right to alter their pricing? I believe so. Does it raise questions about how much they've been gouging both other carriers and end users historically for the provision of a phone line service? Yes it does." Barlett suggested Telecom Wholesale was using its unregulated homeline service, which is sold to wholesale customers bundled with broadband, to subsidise its regulated broadband
service.

Telecom chief executive Paul Reynolds said competition in the wholesale marketplace had probably come as a surprise to some people.

"There's price competition going on - that's the reality of life," said Reynolds.

"We see in the wholesale marketplace the Red Network making up a wholesale offer just in Auckland, so we come in and say 'we'll give you one as well'. That's competition."

A spokesman for Telecom Wholesale, Steve Pettigrew, said the original two offers were a bid to attract loyal customers and confirmed a deal would be made available to rival network builders once the Commerce Commission had settled the price for sub-loop unbundling - the means for Telecom's rivals to pay for access to its new roadside cabinets.