Telecom has made too many assumptions in calculating the Telecommunications Service Obligation (TSO) says the Commerce Commission’s report.
As reported in Computerworld Online last week (Telco Commissioner rejects Telecom's TSO model), the commission rejected Telecom's model in favour of one imported from the US Federal Communication Commission.
The full report into the Telecom model, made public over the weekend, says Telecom's model doesn’t just look at those areas where residential customers are said to be "commercially non-viable customers" (CNVC), but instead works out the costs for the entire network. (Telecom's model shows around 17% of all customers as being non-viable in the second quarter of 2001 - Telecom initially claimed the TSO cost for these 330,000 customers at $226 million.)
The report says the customers that are viable could make up as much as 30% of the reported cost.
“It is also possible that some of this amount could be related to business customers," the report says.
The report also says Telecom made a similar error when reporting the cost of providing free White Pages listings for all residents, rather than just for those non-viable customers. Telecom said the cost of providing White Pages listings was over $5 million for six months.
"Overall, it is likely that Telecom’s listing of CNVCs in its White Pages is not a material cost to Telecom. It may even increase Telecom Directories’ revenue [because of the value to Telecom of having a universal directory]."
Telecom Directories’ gross revenue for the six months ended 30 June 2002 was around $100 million.
Telecom also made use of "modern equivalent assets" instead of listing actual network assets. In effect, Telecom ascribed a modern day equivalent cost to the equipment in the network rather than an actual cost. Telecom’s model values all network assets at the 2002 value of a new modern equivalent asset.
“The [modern equivalent asset] may have higher specifications and better functionality than the historic asset but no adjustment is made to take this into account…
"Telecom has limited data on the exact age of its assets. It had to estimate such data at a summarised level," says the report.
The local industry is invited to discuss the commissioner's replacement model at a conference to be held in Wellington on May 15 and 16.
Other telcos in New Zealand will be required to pay Telecom a proportional share of the TSO costs.
TelstraClear's regulatory affairs spokesman Grant Forsyth says he doesn't believe there should be any charge to the other telcos as the local loop is highly profitable for Telecom.
"We've said repeatedly if it's such a burden for them we'll take it off their hands."
Forsyth says Telecom's continual threat of reduced investment in the network if its TSO costs aren't met is a hollow one.
"The network is already of such poor quality in places that you have to think they've been under-investing all along."
Forsyth says the other side of the TSO cost argument is that if the bill to other telcos is too high, questions will need to be answered about why it costs so much to provide connectivity to pockets of customers.
"It would provoke a review of the TSO itself and Telecom's desire to be involved in things like Project Probe."
Telecom's general manager for government relations Bruce Parkes was not immediately available for comment.