KEY POINTS:
The Government is forcing Telecom to maintain rural services in a shake-up for industry subsidies to country customers.
A review of the Telecommunications Services Obligations (TSO) includes suggestions that some of the subsidies paid out of industry levies should be scrapped, the Telecommunications Carriers Forum says.
Services to around 60,000 uncommercial rural customers are among three bogged-down issues in Government discussions to accept the Telecom separation agreement.
The agreement sets Telecom obligations now it has been split into three regulated divisions - networks, wholesale and retail businesses.
Well-placed sources say on the eve of March 31 "Separation Day" there were still three significant issues - including rural services - and talks only ended at midnight Sunday.
At 9.15am the next day Telecommunications Minister David Cunliffe announced the agreement.
Cunliffe had been demanding that Telecom chief executive Paul Reynolds make firmer commitments.
An industry source familiar with the situation said there was a view that - purposefully or accidentally - Telecom's wording of the agreement gave "wriggle room" to limit obligations at a later date.
Two of the problem areas were unclear.
But the issue of rural customers and the TSO, which includes subsidies for rural services, was a problem.
The TSO - which includes Telecom obligations to keep free local calling - has been around since 1991 and was last reviewed in 2001.
The Telecommunications Carriers Forum - representing Telecom and other players - says there is a mood for change. This was represented in the forum submissions for a review set to be completed by June 30.
The TSO is funded by the entire industry, Telecom picking up around 70 per cent of the cost and the rest of the industry including Vodafone and TelstraClear the rest.
But while non-Telecom companies make a transparent cash contribution, the company's own accounting of the money has been opaque.
Reynolds "reaffirmed Telecom's obligation to rural New Zealand" in a letter to Cunliffe on Sunday.
"I want to be far more transparent about what the TSO means to our rural customers and how we apply compensation for our rural capital expenditure," Reynolds said.
"I am committing to ensuring that the level of our per annum capital expenditure in rural New Zealand will not be less than the amount of TSO compensation payments that are received from other service providers. I am also committing to agreeing a funding methodology for future TSO instruments which is clearer and simpler than the existing one."
But a spokesman for rival Vodafone, Tom Chignell, said that the commitments made in the letter were more limited than they initially appeared.
Greater transparency will be welcomed. But with the TSO up for review Telecom is committing to total expenditure that could be substantially less than the $78.5 million stipulated this year.
Ralph Chivers of the Telecommunications Carriers Forum said that even for his industry body - which has Telecom as a member - it was not wholly clear what Telecom was agreeing to. "We are seeking clarification today," Chivers said.
The forum is suggesting that among the options for the TSO was turning it into a tender contract to supply uncommercial rural customers.
But there was an argument about whether there were as many of those customers as when the TSO was established in 1991.
He said the forum submissions were that the TSO agreement should take into account changes due to technology and that it it has focused on fixed line services.
Vodafone which has resented paying cash to Telecom - $17 million for the year - argues that some TSO rural markets have mobile phone compensation.
Telecom shares closed up 3c yesterday at $3.87.
