Making it viable

Why is the telecommunications commissioner insisting Vodafone pay Telecom $13 million dollars a year for the upkeep of Telecom's network?

Why is the telecommunications commissioner insisting Vodafone pay Telecom $13 million dollars a year for the upkeep of Telecom's network?

I can understand TelstraClear, Ihug and some of the others paying for the network (though not under the current regulatory regime), but Vodafone? That makes no sense to me at all. Vodafone doesn't care if Telecom's landline network exists or not. Vodafone has its own network. If Vodafone customers want to call Telecom customers then Vodafone and Telecom can sit down and work out a commercial agreement, and I do believe they have.

So why is it that Vodafone is expected to pay so handsomely for Telecom's network?

The Telecommunications Act defines liable persons who must pay as those who: "provide telecommunications services to end-users in New Zealand by means of a component of a PSTN that is operated by the person and is interconnected with Telecom’s PSTN". That catch-all phrase surely includes Vodafone and any telco that sets up shop in New Zealand if only because Telecom owns most of the phones in the land and therefore any new player must sign an interconnection agreement with Telecom. There is no escape.

The cash is being paid to Telecom to retain the commercially non-viable customers (CNVCs) on the network. These are the folk who live at the edges of Telecom's network in terms of profitability. That's right; Telecom claims there are thousands of phone users who aren't profitable.

I find this hard to believe for several reasons. First, the level of service Telecom is expected to offer under the telecommunications service obligation (TSO) agreement is woefully low. Never mind broadband or even fast narrowband, Telecom's minimum service level to these CNVCs is 14.4kbit/s to most of us and a sickening 9.6kbit/s to the last handful. The expectation is these CNVCs will be using their phones to make voice calls and perhaps a wee bit of dial-up access if they're feeling lucky.

These users also have a much smaller toll-free calling area that anyone living in an urban area. I'm in central Auckland and can talk to around a million people toll free. If you're in the far north you'll have a toll-free calling area that encompasses a few thousand people at best. The toll calling areas themselves are a form of cross-subsidisation and it's rural users who are getting the short end of the stick there. Yet they're still expected to pay the full monthly rate. That says to me that Telecom is making money off these people and no other telco should be expected to pay for their alleged non-viability.

Put this thought aside for a moment and consider how the telecommunications commissioner's office reached the number it did. Granted, Telecom tried its hardest to come up with as large a figure as possible -- remember the half a billion dollars it initially claimed? The commissioner has come back a bit on that, mostly by sticking to the letter of the law. The final TSO report says: "Unavoidable incremental costs are the difference between the long-run costs an efficient service provider would incur with the obligations imposed by the TSO deed, and those it would incur without those obligations". An efficient service provider. That's key here -- we're not looking at Telecom's actual in-the-ground network to see what it costs to provide service to these CNVCs but a mythical "efficient service provider". Telecom, quite rightly, says it can never build such a network and will always dip out because of that. The commissioner, quite rightly, rejects that and points out that this is what the law says, therefore that's how he's doing his sums.

However, I don't think his sums are quite right -- a network capable of providing 14.4kbit/s as a minimum? That sounds like a 2.5G cellular network to me. I'm sure Vodafone would step up to the plate on that one. The commissioner has made much of wireless networking's impact on Telecom's economic capability yet has failed to take that into account when working on the TSO figure.

Quite how they decided Vodafone should liable for nearly 20% of the TSO cost while TelstraClear is liable only for 4.7% and Ihug for 0.02% is beyond me. I understand Vodafone is considering legal action, and while I'm not in favour of employing lawyers I can see why they would in this case. Clearly the TSO in its current form is not working. It's time to ditch the whole thing or tender out those CNVCs to the best-cost bidder.

Brislen is Computerworld Online'sreporter. Send letters for publication in Computerworld to Computerworld Letters.

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