Regulator rules Telecom’s claims way out of line

THE telecommunications regulator has crushed Telecom’s claims it loses $425 million a year on unprofitable customers, instead calculating the loss at $73.4 million.

But its two biggest competitors, Vodafone and TelstraClear, are angry that they will have to pay part of the $73.4 million.

The $73.4 million is regulator Douglas Webb’s draft calculation of the Telecommunications Service Obligations (TSO) costs, issued yesterday.

Mr Webb said there were 51,795 commercially non-viable customers against Telecom’s claim of about 360,000.

The TSO is an updated version of the old Kiwi Share obligations which were originally obligations only on Telecom but under the Telecommunications Act 2001 now have to be shared among the industry.

Both TelstraClear and Vodafone labelled the TSO a tax on competition. The more market share they won from Telecom the greater their TSO share would grow.

Vodafone will have to pay Telecom $3.8 million and TelstraClear will have to pay $3.4 million if the draft is not changed at the regulator’s final ruling expected in August. An industry conference will be held next month for further submissions and debate.

Mr Webb said the draft ruling on the cost of the TSO was $38.8 million for the six months from December 20, 2001, to June 30, 2002, and $73.4 million annualised.

The regulator has the responsibility under the Telecommunications Act 2001 of calculating the TSO cost for “an efficient service provider”.

Mr Webb said the big difference between his figures and Telecom’s came down to two main issues. The commission viewed the services related to the TSO — a free telephone and low-speed Internet service — as low risk and so the appropriate return on capital invested was 6 per cent. Telecom’s calculations were based on a 13.2 per cent return.

Telecom also included the cost of infrastructure no longer used which the commission disagreed with and that was significant, Mr Webb said.

Of all regulatory areas, the TSO had produced “sharper divergence of opinions” than almost any other he could think of, Mr Webb said.

Telecom general manager government and industry relations Bruce Parkes said: “We’ll be talking to the commission about the need to bring some reality into the exercise.”

Mr Parkes said Telecom would contest the commission’s definition of efficient and the 6 per cent cost of capital used. The commission had built its own model of what an efficient provider was.

The asset value was lower than Telecom’s and then it applied a low cost of capital figure to that to get its much lower figure than Telecom’s, he said.

TelstraClear chief executive Rosemary Howard said Telecom’s figures for the TSO showed how it was “gaming” the regulatory process.

It raised serious questions about the credibility of Telecom’s interconnection pricing and wholesale discount claims, she said.

Vodafone managing director Tim Miles said the $38.8 million estimate showed Telecom’s interests had been placed ahead of New Zealand customers. It penalised Telecom’s competitors for investing in New Zealand.

The Telecommunications Users Association was pleased with the draft, saying a much smaller calculation than Telecom’s “utterly outrageous” claims should be a relief to the industry.

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