Telecom is warning that under-valuing the cost of supplying the Telecommunications Share Obligation (TSO) will result in Telecom's business being strangled.
Telecom's general manager for government relations, Bruce Parkes, was responding to the Telecommunications Commissioner's report into Telecom's TSO model (Commission slams telco TSO model) in which the commissioner rejected Telecom's assessment of TSO cost.
But Parkes says that without a realistic model to compare Telecom's infrastructure with, the commission is essentially asking the impossible.
"No-one could possibly build the network the commissioner is talking about".
The commission has to work out the net cost of providing the TSO each year. According to the act, net cost is defined as:
"...the unavoidable net incremental costs to an efficient service provider of
providing the service required by the TSO instrument to commercially non-viable
Parkes says the commission compares Telecom's network infrastructure with that of "an efficient service provider", a hypothetical model that is impossible to live up to.
"Could any person running a business be expected to make a profit or cover their costs if they're continually being optimised and effectively penalised for decisions made decades ago?"
Parkes says the infrastructure Telecom is built on is one that has been in place in some areas for decades and to expect Telecom to match an imaginary and completely efficient model is ridiculous.
"This isn't a business where assets are renewed every couple of years. These are often 20, 30, 40 years old. The net result becomes a systematic under-funding of the TSO."
Parkes says Telecom looked at several telcos in the US to compare its efficiency level with that of similar businesses.
"Our approach was to say 'how do we compare against other people, are we efficient against them?'. We performed pretty well but we nevertheless adjusted our costs down on the basis of our benchmarking."
Parkes says Telecom accepts the idea of compensation based on efficient costs but it "all depends on what efficient means".
The problem for Telecom, says Parkes, is that any under-investment in the TSO will result in under-performance on Telecom's bottom line.
"They've effectively come up with a systematic shortfall I suppose you could call it. What underpins the view is that Telecom can afford it, she'll be right. What people aren't realising is that all the profitable bits of Telecom's business are getting squeezed - toll calls, etcetera. All the bread and butter profitability is disappearing and the ability for us to cross-subsidise is diminishing."