On the one hand you've got certain TSO services enshrined for all time: you won't have to pay for local calls, you won't get charged more just because you live outside the main centres. On the other someone's got to pay for this.
Remember: the TSO idea first came about when the government privatised Telecom in the early 1990s. We didn’t get much else out of it; there was no public offering, as we've seen with Telstra in Australia, so no chance for everyday New Zealanders to buy a slice of their telco. In the decade that followed the US owners demanded, and received, enormous dividend payments on their "investment" (the word “gouging” was mentioned in official US committees). So payments that should have gone into maintaining and upgrading the network were instead sent offshore in a maelstrom of greed.
Today Telecom undoubtedly spends lots of money maintaining its network to deliver its TSO and non-TSO services, and the recently created Telecommunications Act requires it work out exactly how much it costs to provide the TSO and that all the other players pay their share. As we know, Telecom did its sums and came up with $450 million for a year's worth of paying for the unprofitable side of the business. The commissioner demanded a recount. Telecom came back with a hugely reduced number but even that wasn't enough. The commissioner has now said the model Telecom is using is too flawed to bother with.
The commissioner's report into the Telecom model runs to only 18 pages but contains enough new acronyms and abbreviations to kickstart the tech sector back into life all by itself. Modern equivalent assets (MEAs) jostle for position with weighted average cost of capital (WACC), cable terminals (CTs -- that's the end user to you), and my favourite, the commercially non-viable customers (CNVCs).
Beyond all that, however, lies a relatively simple assumption on the part of the government and the commissioner: network efficiency. The commissioner compares Telecom's network with one built today from scratch using best-case technology. Any costs incurred in the daily running of the network beyond those incurred by this imaginary network are Telecom's problem.
Of course, this imaginary network is exactly that -- an impossible dream. Nobody could expect a telco to have such a network. Telecom looked at the US market and compared its infrastructure with a collection of real-world networks. It decided there were probably grounds for it to be about 3% more efficient than it is based on this comparison. I'm sure the commissioner will expect a great deal more efficiency and will set the TSO cost accordingly.
The danger here, as Telecom's general manager for government relations Bruce Parkes pointed out to me, is that a systematic underfunding of the TSO has the potential to cripple Telecom.
The most profitable parts of Telecom's business are being squeezed, and rightly so. For too long, Telecom has dragged its feet about things like interconnection, number portability, bundling of services and all the rest. Slowly, one by one, each of these areas is being ticked off and competition opened up. TelstraClear has a huge chunk of the toll call market and the competition there is fierce. The mobile market is hotly contested and soon broadband will be as well. Telecom's cash cow is being chopped up into burgers and handed out in the marketplace. That's a good thing, though it does leave Telecom worrying about being able to pay for the future.
The flipside to this scenario is, of course, overcharging for the TSO. Companies like Ihug and Iconz aren't going to suddenly come up with the millions of dollars for their share. Companies that are smaller still will go to the wall should they be required to pay anything like a proportional chunk of $450 million. As TelstraClear's regulatory affairs spokesman, Grant Forsyth, told me, the benefits of operating a national network and being able to offer a seamless service mean you have to have coverage in areas where there is little demand -- that's just the price that is paid. Telecom has to wear that cost as does Vodafone with its network and BCL with its.
Sharing the pain of these commercially non-viable customers should also mean sharing the profit when it comes to the highly viable ones, shouldn't it? The debate on this has only just begun and the commissioner will be making a decision in the coming months. Good luck to him, I say.