TelstraClear raises line rental price but trims tolls

TelstraClear is effectively relinquishing one-third of its 65,000 phone customers to Telecom with an unusual upward move in pricing.

The company is increasing the price of home phone line rentals to customers outside its core service areas of Wellington, Christchurch and Kapiti to $44.85 a month. That makes its service about $5 more expensive than the same offering from Telecom.

But at the same time, TelstraClear is also offering greater discounts in toll calls.

Steve Jackson, head of consumer sales, said customers who spent more than $20 a month would not end up paying any additional charges. But, he admitted, customers who spend less than $20 might find it more economical to take their business elsewhere.

"It's going to be the customer's call."

Analysts do not see any reason for these low-spending customers to stick with TelstraClear and expect them to migrate to other providers. Competitors such as Woosh and CallPlus may pick up some of these but, in most areas, Telecom will be the only option.

"[Telecom] will be rubbing their hands with glee," one observer said.

The pricing move is part of TelstraClear's retreat from being a full-service competitor to become a niche player focused on profitability, announced two weeks ago.

The company is looking to boost calling margins by cutting down on its wholesale calling arrangements with Telecom.

Jackson said the existing wholesale margin offered by Telecom - about 2 per cent - was too small to be profitable and too little to be able to guarantee service levels with low-spending customers. The new pricing would boost TelstraClear's profit margin to about 15 per cent.

Telecom said its margins were fair given that TelstraClear was not offering much in the way of value-added services.

"They're being rewarded for the job they're doing," said Bruce Parkes, Telecom's head of regulatory affairs.

TelstraClear's move comes amid a global trend towards lower calling costs, driven mostly by new technologies including voice-over-internet protocol (VoIP). With an explosion in the number of people taking up free internet-based phone services such as Skype, traditional telcos are coming under pressure to lower toll costs and line rentals.