Telecom increase 'opportunistic'

Telecom's decision to raise home phone rental charges yesterday is being called opportunistic by market analysts.

The move - which Telecom hopes will help staunch declining calling revenue - will generate an extra $10 million a year.

The company will raise residential line charges by 5.5 per cent in March, resulting in an increase of $2.35 a month for most customers. The standard monthly HomeLine rental will rise from $39.85 to $42.20, and from $32.85 to $34.80 a month in Wellington and Christchurch, where rival TelstraClear sells access.

The increase will not apply to customers on the Anytime, Budget Link and 60s Plus calling plans, but will affect 700,000 subscribers, most of Telecom's 1.2 million customers.

Telecom spokesman John Goulter said the move was intended to help alleviate the impact of declining calling revenue, which has been falling for several quarters.

Calling revenue for fiscal 2005 was $1.3 billion, down 13 per cent from $1.5 billion in 2003. In the latest quarter, calling revenue dropped a further 4 per cent to $355 million from $368 million a year ago.

Calling makes up the lion's share of Telecom's total revenue - about 24 per cent, down from 29 per cent in 2003.

Goulter said the rate increase would encourage customers on to the Anytime plans, which offered better toll call rates. That would pay off in long-term revenue.

"Short term, it's actually leading to a decline in calling revenue because we're offering calling at a lower rate under Anytime. Longer term, it is attempting to shore up more long-term customer loyalty," he said.

"We do see bundled packages such as Anytime as the way of the future."

But analysts said the rate hike was reflective of other competitive developments. TelstraClear recently indicated it would no longer compete with Telecom in reselling its phone services to marginally profitable customers and, in November, raised its own home rental prices.

Forsyth Barr analyst Jeremy Simpson said that took a bit of the competitive heat off. "It's probably a little opportunistic. The reason they haven't put [rates] up in the last couple of years is because Telstra has been entering the residential market through that resale," he said.

Another analyst, who asked not to be named, said regulation against Telecom last year was also a likely factor in the rate hike.

In December, the Commerce Commission gave TelstraClear better terms to wholesale Telecom's internet access and also indicated it would lower mobile termination rates - the amount the company can charge other phone providers for putting calls through to its mobile network. Revenue is likely to be hit.

"It's interesting timing for Telecom to do this in that context," the analyst said.

Goulter denied the rate increase had anything to do with regulation. "Telecom faces rising costs in a number of areas, and this is an adjustment to reflect that really", he said.