October 4, 2008

Watchdog Revises Cost of Non-Viable Basic Service


FOR the second time in a fortnight, the Commerce Commission has announced a draft decision to cut the cost to Telecom and other telecommunications companies of providing basic services to non- commercial rural areas.

The commission revised down the cost for the 2005-06 draft of the Telecommunication Service Obligations determination from $78.2 million to $64.6 million.

Early this month, it cut the cost for 2004-05 from $71.4 million to $57.3 million.

Telecom provides the services on its copper network and bears 69 per cent of the costs, with the balance carried mainly by Vodafone and TelstraClear.

The TSO, like its predecessor the Kiwi Share, is a deal between the Government and Telecom to give all New Zealanders a minimum phone service with prices tied to the consumer price index.

About 61,000 rural phone users are deemed commercially non- viable.

Vodafone welcomed the cuts but remained unhappy that it was not allowed to service the "so-called non- viable" customers via its mobile network, Vodafone spokesman Paul Brislen said.

Before the commission's revision, Vodafone estimated it had paid out more than $100 million to Telecom in TSO contributions.

"So for us to give that money to Telecom seems a bit strange, given that Telecom has been shown not to be spending the money on the rural sector itself," he said.

At last year's Digital Future Summit, Communications Minister David Cunliffe told delegates that Telecom's net investment in its rural fixed network had fallen far short of what was required.

The TSO is under review and Mr Cunliffe is expected to announce a radically amended version in August.

The reason why the commission decided to revise down the cost for the two years was that it concluded it should no longer introduce mobile technologies into the TSO modelling process.

The commission said that this reduced Telecom's investment risk associated with supplying the TSO, resulting in a decrease in the TSO cost.

The latest determination by the commission is not final and it is seeking further submissions on the issue by June 10.

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