Telco watchdog needs good set of fangs

By CHRIS BARTON

A significant moment in telecommunications history occurred last week: the telco watchdog finally bared its teeth.

It's been a long time coming. An entire term of Government to get the Telecommunications Act passed. More delay while the commissioner was appointed. Then Telecom and TelstraClear had to go through the motions to call on the commissioner, Douglas Webb, to step in.

All this to resolve a dispute that's festered for more than a decade. The wheels of parliamentary process do indeed grind painfully slow.

So, in their first public appearance, what are watchdog Webb's teeth like? Well ... you'd have to say, not very scary: less the watchdog's snarling fangs than the grin of a Cheshire cat - enigmatic and slightly silly.

In his first draft ruling, Webb took the rather timid step of suggesting interconnect payments should be halved to between 1.21c and 1.42c a minute. These are the payments telcos make to one another when calls move from one network to another - a bit like a border crossing fee.

Like most border disputes, the fees have been a source of conflict between telcos for yonks. At present, Telecom gets the lion's share - about $111 million a year - because it has the biggest network. It charges the other telcos between 2.5c and 3.5c a minute and they charge Telecom around 1.5c a minute when traffic crosses into their networks.

Naturally, Telecom wants to keep the imbalance. But it's so patently wrong and anti-competitive that Webb's decision is really not whether he should change it, just by how much.

But he does have to follow a rather convoluted process as set out in the act. Already he's making a meal of it - unable to make a binding decision in the 50 days timeframe set down in the legislation. But read the gobbledygook of his draft ruling and you have to have some sympathy. Telco jargon and the mechanism of interconnection have to be the most obtuse form of discourse since Jacques Derrida.

For example: "A further problem is that FLCB benchmark rates will recover both the incremental costs of termination and costs common to other services. This may provide opportunities for operators to vary the contribution to common costs per unit, increase volumes and therefore profit from the difference in the charge and cost." Indeed.

The act also doesn't allow Webb to take into account more than a decade of "monopoly rents" - estimated at more than $100 million a year - that Telecom has enjoyed, partly through its ability to thwart competition and set interconnect rates at whatever level it wants. Nor can Webb look at other instances of Telecom making laws to suit itself - such as in 1999, when its bully-boy tactics were briefly turned back on itself.

At that time, home internet users in the land of Telecom crossed the border in droves to Clear's territory, stayed online for a long time, and in the process gave Clear and others tens of millions of dollars a year. It's what's known in telco jargon as a "call sink" and it absorbed Telecom's attention and dollars during 2000 as free internet providers came on stream. Naturally, Telecom was not amused and moved to stop what it called "perverse incentives" by mandating its infamous "0867" regime.

That piece of Telecom law said all internet users must dial an 0867 prefix for internet access or face a 2c- a-minute penalty. It also decreed that 0867 numbers would not be subject to interconnect payments.

Clear and others found a way to bypass the regime and Telecom responded by cutting off one of the free internet provider's lines.

The Commerce Commission took action against Telecom for anti-competitive behaviour and the case is currently before the High Court. Yes, the wheels of justice grind slowly too.

Interestingly, Webb sides with Telecom on call sinks - suggesting data calls shouldn't be subject to interconnect payments but should operate on a "bill and keep" basis. It may be a wise decision, but in an age where all traffic, including voice, is switching to internet protocol, why would you separate data and voice? Anyway, call sinks would never have been such an issue if interconnect prices hadn't been so high.

Which brings us back to whether 1.21c to 1.42c a minute is low enough. Webb favours a cautious approach. But his timidity is hard to fathom when one looks across the Tasman at weighted average interconnect rates of 0.92c. Or to parts of the United States, where they are as low as 0.41c.

Caution is not a word a consumer - for far too long denied real choice in telecommunications - wants to hear, Douglas. We need a watchdog with good, strong, glistening teeth.

Commerce Commission decisions


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