Cheaper net? Here's hoping

By CHRIS BARTON

I tangled with the new Telecommunications Bill, and it wasn't pretty.

"Even with Baumol Willig outlawed, and TSLRIC [pronounced, poetically, tee ess lyric] in its place, ARPUs [pronounced, disconcertingly, our poohs] are coming down and the numbers don't stack up."

Yes, that's how telco people talk. What's harder to believe is that it actually makes sense - to them.

For Clear Communications, the term Baumol Willig has long been a grave insult - as in "Eat Baumol Willig and die".

The new bill ensures that no one will have to endure, as Clear did, that ignominy again. It also ends almost a decade of really bad telecommunications legislation.

When New Zealand became one of the first nations in the world to deregulate its telecommunications market, in 1990, the Government created such a light-handed system that Telecom could stomp its foot at will and tilt the "level playing field" in its favour.

The battlefield was interconnection agreements, the deal telcos work out to pass their customers' phone calls to and from another telco's network - like a border-crossing fee.

The big question was how to price the fee. The Government didn't set any rules, so Clear ended up in a protracted court battle which Telecom eventually won in 1994 by going all the way to the Privy Council.

The British law lords ruled Telecom could Baumol-Willig as much as it liked. And so it did - charging more for interconnect fees than almost anyone in the world.

In spite of this, New Zealand did get competition and consumers did benefit from lower-cost toll calls. But as all the competing telcos will tell you, had we adopted the TSLRIC (total service long run incremental cost) method then - as we have now - interconnect fees would have been much less and consumers would have benefited much more.

If that proves true, the Government deserves a pat on the back as the first in more than 10 years to recognise that strong rules must be laid down for competition to flourish in a deregulated telecommunications market.

Not that the era of radical, free-market Rogernomics is entirely gone. The Government is at pains to point out that this new bill is still, by most standards, extremely light-handed regulation. Most would agree.

The rest of the world adopted TSLRIC ages ago and has moved on to another silly acronym - LLU (local loop unbundling) - as the next step in promoting competition.

That's breaking the monopoly Telecom has on the wire from our homes to our local exchange. With LLU, another telco, if you as a customer direct it to, can seize control of those copper strands (for which it pays Telecom a rental) and provide your telecommunications.

But the Government, and in particular Communications Minister Paul Swain, have said no LLU. Mr Swain says overseas experience shows LLU is difficult and costly to implement.

Although the weight of evidence worldwide is clearly in favour of LLU, there are some examples to support his argument.

So in lieu of LLU, the bill introduces what he calls "a rigorous wholesaling regime".

Fair enough, except it's really not that rigorous. While the bill has introduced some good mechanics for wholesaling - including a formula for setting the price - it has limited wholesaling to services.

TelstraSaturn and others argued that wholesaling should be much broader and include network components.

In other words, there should be wholesale prices for discrete telecommunications elements such as stutter tone - the noise you get on your Call Minder telling you there's voicemail; or data tails - part of a leased line link between a business and its local exchange.

Under the bill, competing telcos won't be able to get a wholesale price for such things. Instead they will have to buy the whole service - Call Minder or an entire end-to-end leased line - rebrand it and resell it.

So where does that leave us with getting cheaper fast internet access? Not in a good position, as far as I can tell. Telecom's Jetstream has two components - a Telecom link from your home to the exchange and an internet provider part which includes international bandwidth.

Under these regulations, Telecom will be obliged only to wholesale the entire service. Much better for consumers would be for telcos to get a wholesale price for the link to the exchange, then use their own networks, technological nous and buying clout to provide internet access and international bandwidth.

Still, there is a glimmer of hope. The new bill will introduce wholesaling of the Telecom line rental to your home. That means you will be able to say to all the telcos out there: "Here's my home phone line - I want fast internet, toll call and mobile services. Now it's costing me $400 a month; what can you offer me if I give you all my business?"

Depending on how the "rigorous wholesaling regime" pans out, that may get some lower prices.

But then again, as all the telcos and particularly the mobile operators will say, ARPUs (average revenue per user) are falling.

* chris_barton@nzherald.co.nz

Links


Telecommunications Bill

Ministry of Economic Developement - Telecommunications

Ministerial Inquiry into Telecommunications

Broadband access matters more than broadband content