TelstraClear price cut plan threat to Telecom

By PETER GRIFFIN

The Commerce Commission has delivered more bad news for Telecom, releasing plans to slash the rate it can charge rival TelstraClear for access to wholesale services.

TelstraClear could soon be taking advantage of discounts ranging from about 15 to 18 per cent on Telecom products and services it resells to its customers.

It currently receives single-digit discounts off the retail price Telecom customers pay.

The discounts could apply to 212 Telecom services, from national toll calls and directory assistance to toll-free services and dial-up internet connections.

With up to $60 million passing from TelstraClear to Telecom each year in wholesale payments, the discounts could mean savings of several million dollars a year for TelstraClear.

Chief executive Rosemary Howard was disappointed that the discount range was lower than the average in 47 US states looked at by the commission.

"But it's a hell of a lot better than where we are now," she said.

"We'd like to do things like toll calls on our own network but use wholesaling to pack in more services."

The discounts will also be backdated to June, forcing Telecom to write another cheque for TelstraClear.

This month the commission cut interconnect prices - what Telecom and TelstraClear charge to access each other's networks - from 2.63c a minute to 1.13c and backdated the decision. Telecom had to pay TelstraClear $14 million as a result.

Analysts were ambivalent about the discount range, pointing out that standard retail prices for Telecom services were yet to be defined, so the real benefit to TelstraClear could not be calculated.

As the discounts took effect Telecom would probably make more money out of wholesaling as TelstraClear bought more services, but would lose market share to its competitor at a greater rate.

Howard said the discount extended to Telecom's high-speed internet service JetStream, which TelstraClear and a number of internet providers already resell but at a tiny margin.

TelstraClear was looking to next year's local loop unbundling review to deliver a better deal for wholesaling high-speed internet services.

"We only want to buy the link from the customer back to our network and this doesn't uncover so-called unbundled services," she said.

"It will give us more room to move but it's not where we want to go."

The chief executive of the Telecommunications Users Association, Ernie Newman, said a larger discount would have allowed benefits to flow through to consumers sooner.

"Regulation of wholesaling will put an end to the kind of setback that occurred in 1999 when Telecom arbitrarily rescinded an agreement it had with Telstra to wholesale certain business services," he said.

The telcos can now make submissions for different levels of discount. A decision on wholesaling will be handed down in the new year.

Telecom said it would put a "massive amount of effort" into reviewing the discounts, which chief operating officer Simon Moutter said were more generous than those granted in Australia.

The decision came as TelstraClear was undertaking its first major charm offensive on Australian and local analysts at a briefing in Auckland.

While Telecom and TelstraClear have been at each other's throats, the former has expressed interest in jumping into bed with Telstra.

Telecom chief executive Theresa Gattung told Australian media last week that there was room for Telecom and Telstra to join forces to form a major Australasian telco.

Merging the two companies would be extremely difficult to get past competition regulators, she said, but it was a possibility "if you take a 10-year view".