Watchdog tells Telecom to sharpen its pencil

By PETER GRIFFIN

The Commerce Commission has rebuffed Telecom's claims that its obligations under the Telecommunications Act will cost it $425 million a year, and has asked the company to do the figures again.

Under the new telecoms regime, the commission must calculate the cost of providing basic phone and internet access nationwide, known as the Telecommunications Service Obligation (TSO).

Traditionally, Telecom has worn this cost under the old Kiwi Share arrangement, but legislation brought in last December shares the cost around the industry based on market share.

Telecom's last estimate of its TSO cost was about $180 million, a figure dismissed by rivals, who claim the money Telecom makes from profitable customers far exceeds losses on unprofitable outlying areas.

Telecom must provide a revised estimate by October 18.

Osmond Borthwick, network access group manager at the commission, said there were differences for the six months to June 30 between the methodology Telecom had used and the TSO instrument outlined in the act. Whether that would raise or lower the six-month figure of $226.5 million or the full-year estimate of $425 million was unclear.

"We had a view about how the calculation should be made and we've asked [Telecom] to calculate it that way," said Borthwick.

Telecom put the large increase in its estimated TSO cost down to the new methodology in the act, a big increase in free calls to the internet and its cost of capital rising from 11 per cent to 13.2 per cent

But the commission said both figures would be considered when it decided on the "net cost figure" it would use to carve up the TSO bill among telco firms.

A final estimate of the TSO, to be released in December, is eagerly awaited by Telecom's rivals.