Cheaper and faster broadband from ihug

Cheaper and faster internet access is officially here with ihug firing the opening salvo in a price war.

New Zealand's third-largest internet service provider yesterday announced a two-megabit-per-second plan - 50 times faster than dialup and four times faster than most entry-level broadband offerings - for $29.95 a month. That significantly undercuts Telecom's equivalent-speed offering, which is $69.95.

Existing ihug customers on lower-speed plans will be able to automatically upgrade their speeds through their online accounts. The ISP has about 100,000 customers.

The ihug plan does have a few catches. Under the most basic offering customers get a download limit of only 500 megabytes as opposed to 10 gigabytes under Telecom's similar plan. A more expensive plan, at $39.95, offers a four-gigabyte cap.

Customers also need to sign up for toll calls with ihug to get the full deal, otherwise the cost is $10 more.

Nevertheless, the Telecommunications Users Association praised ihug for moving broadband speeds and pricing more in line with other countries.

"It's a breath of broadband fresh air," chief executive Ernie Newman said. "It's a great move forward to be commended."

The price move is somewhat risky for ihug because the company is not guaranteed to benefit from new regulations in the offing and is likely to lose money under the current wholesaling regime.

The Commerce Commission last week issued a document that outlined new rules Telecom will have to follow in selling wholesale internet access to TelstraClear. Telecom will no longer be able to set speed limits and will have its wholesale rate set at $26.57 per connection.

A final determination is not expected for a few months and even then the decision will apply only to TelstraClear. Other ISPs, such as ihug, will have to apply separately to get the same terms.

The ISPs, however, are confident the commission will grant similar if not better terms, and chief executive Mark Rushworth insists ihug is not jumping the gun.

"We have a rough idea of how long things take through the commission and we have a date in mind when we'll potentially have different rates in the market, and all of that's built into the business case," he said. Rushworth declined to say exactly when that would be.