Upsetting customers not a good marketing plan

TelstraClear could have championed the underdog. Instead it acted like the incumbent

If you’re entering a market with a dominant, incumbent that is helped along by inept regulation the tech-savvy underdog role isn’t a bad idea. For long-suffering customers tired of either not being supplied with the telecommunications and data products and services they needed, or if they were, at exorbitant pricing, TelstraClear with its fast nationwide fibre-optic network meant there was finally choice in New Zealand. That’s the sort of goodwill money can’t buy.

Now, however, it looks like TelstraClear has squandered not only the customer goodwill but also its technological advantage over Telecom. I am of course talking about TelstraClear’s decision to disconnect from its target market — New Zealand ISPs — at the Auckland and Wellington peering exchanges.

The “marketecture” driven decision to de-peer means providers will have to buy TelstraClear’s Domestic Internet Service (DIS) if they wish to reach the telco’s customers via fast and efficient national routes. In the past, providers could do so by simply purchasing circuits to one of the peering exchanges.

TelstraClear says it de-peered because it wants make money out of its $1.5 billion national network, and that it’s unfair to expect it to provide “free internet” or national data transit for providers.

It is vital for TelstraClear to make money to remain a strong competitor in New Zealand and it shouldn’t give away things for free.

But do TelstraClear’s arguments hold water? For starters, peering never meant “free internet” as the circuits to the exchanges always cost money. Second, TelstraClear is charging $160 per megabit/s per month for its DIS, plus delivery and access charges — anywhere from $500 to $1,000 a month on top in metro areas.

If a provider currently has a 10 or even 100Mbit/s Ethernet circuit to a peering exchange, where it has access to other providers and thus can leverage the monthly cost of the data link, a direct DIS interconnect with TelstraClear starts to look silly.

What’s more, if the provider has to have fast national access to TelstraClear’s network, it’s cheaper to buy it elsewhere. Apparently Telecom charges only $72 per Mbit/s per month, and it has direct peering with TelstraClear over two gigabit Ethernet circuits due for an upgrade to twice the capacity. ICONZ which is a DIS customer already is rumoured to be happy to provide access for a token monthly charge.

Could providers perhaps recoup some of the cost for accessing TelstraClear’s network by charging the telco for accessing theirs in turn? Well, no: TelstraClear says it’s only selling access to its network and not in the business of charging for data flows so it won’t pay providers.

Unfortunately for TelstraClear, providers are no fools and see through the “marketecture” spiel. And they are not happy because from their point of view, they get far less performance for much more money. Adding to the grief, providers that are existing TelstraClear customers have to handle users complaining about traffic tromboning via expensive and slower overseas circuits as happened with hugely popular auction site TradeMe — explaining policy routing and marketing driven internet infrastructure changes to irate non-technical end-users is a helpdesk burden that providers could do without.

The irony here is that TelstraClear could probably have avoided both making its network less attractive and the bad publicity if it had remained at the peering exchanges, but charged for the peering itself. That’s quite common overseas, and while it still would’ve annoyed smaller providers, it would’ve been a more palatable solution.

Ultimately, however, the internet allows for “routing around damage” so why are we and others still banging on about TelstraClear isolating its network instead of just going around it? Because it is a big player in New Zealand and more importantly, it has several government departments as customers.

I have tried to get an answer out of the government as to whether or not TelstraClear’s “marketecture” is in line with the “Digital Strategy” that says New Zealand netizens are meant to have easy and efficient access to e-government services. The Ministry of Economic Development’s manager of its information technology and telecommunications group, Reg Hammond, doesn’t appear overly concerned about the de-peering changing the New Zealand internet landscape.

Hammond, whose MED is a TelstraClear customer, says that the “internet is a global network of networks” and that it has always been the case that some messages go offshore before returning to New Zealand. He adds that it is possible that "Telstra [sic]" de-peering has increased the possibility of this happening, but says it isn’t necessary that any message will have to offshore. If this leads to service performance degradation, Hammond says the most likely solution is commercial, with contracts detailing service quality levels or customers shifting providers ultimately.

That doesn’t really tell us much, but the ministry has however hired Wellington management consultants Azimuth to write a report on the de-peering for it, which will perhaps clear things up for the mandarins.

The big question now is of course if new TelstraClear boss Alan Freeth will move to stem the damage done by de-peering and head down the path that recognises technological efficiency as a marketable asset. As New Zealand badly needs a competitive counterweight to Telecom, here’s hoping he will.

Saarinen is a Computerworld reporter. Contact him at

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