TSO payments cause for concern

While the telecommunications industry comes to terms with the telco commissioner's decision over unbundling, Vodafone still has its eyes firmly fixed to the decision over the Telecommunications Share Obligation (TSO).

While the telecommunications industry comes to terms with the telco commissioner's decision over unbundling, Vodafone still has its eyes firmly fixed to the decision over the Telecommunications Share Obligation (TSO).

Vodafone is the big loser in the commissioner's study, which sets the price each telco must pay towards the upkeep of the commercially non-viable customers (CNVCs) on Telecom's network. Vodafone must pay around $14 million a year to Telecom, roughly 18% of the total TSO bill. TelstraClear is to pay just over $3 million with the remaining six contributors paying Telecom the remaining $1 million between them.

Vodafone is considering its options and may even go so far as to mount a legal challenge, says public policy manager Roger Ellis.

"We're extremely disappointed with the commissioner's decision and are looking at all our options right now."

Ellis says Vodafone disagrees not only with the way the funding is allocated, but with the need to fund Telecom's TSO costs at all.

"We have excess capacity in some of these areas and we've offered to take those customers off Telecom's hands but they won't have a bar of it".

The Telecommunications Act spells out the TSO issue, saying all those telcos that make use of Telecom's network must pay towards the upkeep of CNVCs. Telecom and the commissioner have debated just how many CNVCs there are in New Zealand and Telecom's initial claim that they cost nearly $500 million a year to connect to the network has been watered down to $34 million.

However, Vodafone challenges the commission's model, which is supposed to identify those "incremental costs to an efficient service provider of serving these individuals/areas" that are deemed non-viable. The commissioner's "efficient service provider" model is based on what the report calls a "scorched node" model that relies heavily on line-based infrastructure. Ellis says that's not the most efficient service possible and wonders why the commission didn't consider a cellular network to be more efficient.

"How can it be more efficient to dig trenches across the countryside?"

In fact, the commission's report does address the question of a more efficient cellular network, but rejects it as not fitting with its approach.

"A network model built on conventional 2G mobile technology (CDMA or GSM) is unlikely to be consistent with the Commission’s position on scorched node," says the report.

Vodafone also questions the decision to base the ratio of payments on net revenues.

"Basically it's seen our share double and TelstraClear's halved."

Vodafone's argument is that it doesn't use Telecom's network to earn those revenues and that any interconnection with Telecom's network is already paid for with its interconnection agreement. The Telecommunications Users Association (TUANZ) chief executive Ernie Newman has complete sympathy with Vodafone over this.

"It's a load of old cobblers, it really is."

Newman says the situation is perverse and isn't one that was intended when the act was drafted.

"Vodafone cannot compete to offer service to these customers because Telecom won't let anyone else service these supposedly non-viable customers and it has to subsidise Telecom to offer a less-efficient service. It's absurd."

Newman says a complete rethink of the TSO accord is needed that should open up the CNVCs to competition.

The Telecommunications Carriers Forum industry body has been working on a draft resolution to take to government over just this issue, however that has stalled owing to a difference of opinion between board members on the issue, says the chair of the forum, Malcolm Alexander.

"There is a difference of view at board level and within the working party as to whether that's something the forum wants to be involved in".

Alexander says the issue is on the agenda for discussion at the next forum meeting, to be held early in February.

Meanwhile Vodafone's executive is expected to make a decision on its next move by the end of February.

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