Telecom price holds despite Commission ruling

Telecom will be forced to offer its rivals faster internet speeds, the Commerce Commission said yesterday, but shares in the company rose despite the ruling.

Telecom will have to offer CallPlus and ihug the fastest speeds its network is capable of, which the commission found to be 7.6 megabits a second - or technically more than double what is available now.

The internet service providers will pay Telecom $28.04 a month per customer, then retail the faster plans at a higher rate - likely to be between $35 and $40. Telecom has 18 weeks to implement the higher speeds.

The company said it would not challenge the ruling in any way.

"It's pretty much what we expected," said spokesman John Goulter. "There's a lot of detail to work through ... but we've got 18 weeks to do that and we'll be working to do that."

Telecom shares bounced back 11c yesterday to $4.17 after closing at a 13-year low of $4.06 on Tuesday.

The stock has plummeted from $5.55 since May 3, when the Government announced a sweeping regulatory package designed to boost competition in the telecommunications market.

The regulations included the creation of three key broadband services - unconstrained wholesale access, the separation of phone and internet services or "naked DSL", and the opening of Telecom's network to rivals' equipment in a process known as local loop unbundling (LLU).

Pricing on the new services was not expected to be set until early next year, and the uncertainty has been weighing on Telecom's share price.

The commission's announcement yesterday seemed to alleviate some of the uncertainty regarding the unconstrained service portion. The $28.04 monthly charge was higher than expected given that the ISPs had requested a fee closer to $21, which meant the ruling wasn't as bad for Telecom as some investors and analysts had feared.

The ISPs had mixed reactions to the pricing.

"We're a little disappointed with the price, but it sends a clear signal from the Commerce Commission that they are looking for people to invest in infrastructure," said ihug chief executive Mark Rushworth.

Industry observers have pointed out that the commission needed to be careful in setting prices for unconstrained and naked DSL services. If they were set too low they would act as a disincentive for ISPs to build their own infrastructure under LLU.

Rushworth agreed with the concern. Ihug has committed $20 million over two years to building its own infrastructure once unbundling is phased in, and the higher-than-expected unconstrained access price "makes our business case for LLU a lot easier".

But CallPlus co-founder Annette Presley was disappointed with the price and said it would limit product differentiation.

A lower wholesale price would have given the ISPs more leeway to offer different services.

Rushworth also cautioned that download speeds of 7.6 megabits were unlikely because the service was still limited to an upload speed of 128 kilobits a second. The low upload speed would limit the download to a maximum of about 5 megabits, he said.

Goulter said Telecom would offer similar speed services itself and introduce the ruling to its other wholesale ISP customers, but he declined to say when.