Telecom and TelstraClear fall out again over fees

Telecom wants Telecommunications Commissioner Douglas Webb to double the interconnection price he had initially determined, and TelstraClear called yesterday for it to be halved.

The two carriers were making submissions at a two-day conference on the acrimonious decade-long issue of interconnection between the networks.

They announced on Sunday they had settled key issues, particularly deciding not to charge each other for internet and voice calls to each other's networks.

But the interconnection price related to toll calls, toll-free calls and fixed to mobile calls had to be determined by the commissioner because the two parties were too far apart to find a commercial deal.

The commission released a draft decision recommending an interconnection price in a range of 1.21c to 1.42c a minute two weeks ago, based on international benchmarking of Telecom's prices with comparable countries.

Telecom's group general manager government relations, Bruce Parkes, told Webb and two other commissioners that Telecom considered its "commercially negotiated" 2.6c a minute average charge in its agreement with Vodafone was a fair market price.

He reminded the commissioners of the primacy of commercial negotiations under the Telecommunications Act, and said the price negotiated with Vodafone should have "a large amount of weight" because it was commercially agreed when Vodafone could have sought a determination from the commissioner.

In addition, Telecom had higher costs than other countries because of New Zealand's difficult terrain and sparsely populated areas, Parkes said.

However, TelstraClear disagreed with the way the commissioners had calculated the initial price.

Some of the states in the United States had been grouped and averaged rather than considered separately. It was critical of the commissioners for rejecting the "purchasing power parity" method when comparing prices. The "PPP" method was used by "almost every" telecommunications regulator.

TelstraClear said a more appropriate price was 0.67c a minute.

TelstraClear's group general manager, government relations, Grant Forysth, said the commission's draft determination was "cautious".

It appeared to be more concerned about the damage to Telecom from a big adjustment in the interconnection price than of the impact on Telecom's competitors if the price were too high.

"New entrants have been horribly stifled by rates charged to us by the incumbent," Forsyth said.

Peter Waters, for TelstraClear, called for the commission to take a median price rather than a price in the third quartile.

Choosing the median was "a safe judgment" and conservative. If there was uncertainty about the cost drivers in New Zealand, the price determined would last for only the 12-month duration of the agreement.

A price in the third quartile carried risk for TelstraClear's business. Charges for "toll bypass" accounted for half of its interconnection costs, Waters said.

Telecom's chief operating officer for New Zealand, Simon Moutter, said too low an interconnection price would "risk just ripping revenue and value from the industry when demand for revenue is high". He suggested a low price might prompt price falls and loss of revenue.

- NZPA