ComCom's telco Easter egg: million dollar TSO bills

Fewer commercially non-viable customers but still a $57 million price tag

The Commerce Commission has finished the Telecommunications Service Obligation (TSO) tally for July 1 2002 until June 30, 2003 and says the final figure came in at $5.86 million less than what the Commission announced in its draft determination and a full $8.89 million lower than the calculation for the 2001/2002 period.

Providers of retail telecommunications services in New Zealand have to chip in to cover for unprofitable customers mainly in the rural areas. According to the Commission, there were well over 65,000 commercially non-viable customers who cost just under $57 million to keep supplied with telephones in the 2002/2003 period or roughly $865 each. The cost of the TSO is levied as a proportion of a telco's annual revenue, with the money payable to Telecom.

The TSO cost is controversial and has been labelled a "telco tax" by industry observers. Even though providers are asked to pay for the unprofitable customers, they do not get access to them from Telecom.

Mobile provider Vodafone which doesn't operate any landlines has to stump up the biggest amount to Telecom, some $12 million. Spokeswoman Sarah Williams says the cellphone giant is very unhappy with the situation.

"Vodafone is disappointed that once again we are slammed with paying our competitors a hefty sum. We believe this is a tax on infrastructure competition and has no direct customer benefit. All it does is penalise infrastructure investors, like Vodafone. Next step is for us to fully digest the Commission's ruling and from there will be considering all our options."

Vodafone had previously indicated it would mount a legal challenge over the previous TSO assessment, however internal problems with its legal team meant the brief was not filed in time. Whether it will try again this year is yet to be decided.

TelstraClear was landed with $3 million bill and its spokesman Mathew Bolland says the idea of subsidising Telecom for a very profitable business is inherently unfair. He says the Commission had the task of "interpreting the deal the government did with Telecom" and that it appears the cost has been correctly apportioned.

While it won't appeal the Commission's decision and will pay Telecom Bolland says the $3 million is money that TelstraClear would have been able to use to provide services for customers.

Compared to the bigger telcos the smaller providers got socked for much less, with WorldxChange paying the most at $114,535.

Malcolm Dick, manager of CallPlus that tried to avoid the TSO cost by splitting his company into two says he not heard from the Commission about that move. Callplus is liable for just over $77,000, and Dick says he's writing out a cheque to Telecom for the amount.

Telecom general manager of government and industry relations Bruce Parkes says the Commission's TSO costing methodology substantially underestimates the actual cost of running the network.

Parkes says Telecom's original estimates were around the $300 million mark, but adds that the telco will "get on with life" and go with the Commission's costing for the TSO which comes as "no big surprise" to it.

Paul Swain, former minister of communications, has said in the past that the issue of alternate network providers being stung for TSO costs contradicted the government's stated aim of encouraging inter-network competition. The government is currently reviewing the Telecommunications Act and while it has ruled out dumping the TSO altogether, will look at the detail of the TSO costing model.

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