Watchdog chews into telco fees

By RICHARD WOOD and BRIAN FALLOW

Competition looks to be the winner and Telecom the loser in the Commerce Commission's draft ruling on the festering dispute over telco interconnection fees.

The ruling, the first real test of Telecommunications Commissioner Douglas Webb and the new Telecommunications Act, suggests payments telcos make to one another for traffic passing between networks should be halved.

The commission has indicated a range of between 1.21c and 1.42c a minute, which is well below the present 2.61c Telecom charges TelstraClear.

The news was applauded by TelstraClear chief executive Rosemary Howard, who said it would encourage competition - although she pointed out the interconnect rate was still higher than in Australia, where it is 0.92c.

"All of the non-Telecom players in the market have been effectively paying monopoly rates because they were set unilaterally by Telecom and they are out of date with international best practice completely. So it is an important day," she said.

Worldxchange operations manager Paul Clarkin said phone users would be the beneficiaries of the ruling.

"It evens up the playing field and is good for competition," he said, adding that the commission's preliminary view would set a standard interconnection rate for all telcos.

"The ref is on the field. He's got his whistle and he sets the rules. Before it was just a game of scrag."

Telecom's interconnection fees have been the subject of industry feuding for more than 10 years.

The company's Government and industry relations general manager, Bruce Parkes, said Telecom would provide further information to the commission to support its claim that relevant benchmarks for interconnect prices should be in the 2.5c to 3c range.

The impact on Telecom of a halving of interconnect fees would "not be substantial", Parkes said.

"The total amount of toll interconnect revenue that we are talking about is less than 1 per cent of Telecom's revenue base."

Telecom reported total revenue of $5.5 billion in the year to June. In 1999, before it was bought by Telstra, Clear Communications received about $18 million in interconnect payments while Telecom received $73 million - a net $55 million in Telecom's favour.

Howard said that if the sum was so insignificant, why had Telecom defended its position of charging "out-of-date rates for so long".

Parkes welcomed the commission's "preliminary preference" to maintain the status quo on local data calls, including dial-up calls to internet service providers.

Under Telecom's present agreement with TelstraClear the two telcos do not charge each other interconnect fees for such calls.

This arrangement benefits Telecom, as far more of such calls flow from its network to Clear's than the other way around - what's known in the industry as a call sink. Had the commission gone the other way on that point it could have cost Telecom tens of millions of dollars a year, Parkes said.

Ihug spokesman David Diprose said the new arrangements would benefit the internet provider which also offered toll services.

"This is looking on the whole bad for Telecom and good for everyone else," he said.

Compass Communications chief executive Karim Hussona said the interconnect pricing had turned out pretty fair and Compass would be happy to pay it. But he was concerned that differentiating voice and data charging would be a complex process.

TelstraClear's Howard was pleased also with the commission's moves to wholesaling calls with per-second charging after the first minute.

"That's the retail industry standard so it is really good now that the commissioner is saying that will apply to the wholesale interconnect arrangement because that obviously makes it also more efficient for challengers."

In arriving at its view the commission had followed a benchmarking exercise that looked at prices in comparable countries and adjusted for structural differences between them and New Zealand. Whether those differences have been appropriately adjusted for will be one area of further argument.

This is only a preliminary, draft decision by the commission, with the chance of further submissions.

There will be a public hearing on the issue on September 16 and 17.