TelstraClear will get a $14 million payment from Telecom, covering the difference between the interconnection charge for the past five months and the new rate of 1.13 cents per minute.
The new rate, announced by telecommunications commissioner Douglas Webb yesterday (see Interconnection rate halved by commissioner), is retrospective to June 1. This is a net calculation, says TelstraClear chief executive Rosemary Howard, taking into account the decreased payments TelstraClear gets from Telecom for interconnection in the opposite direction.
Until now, Telecom has been charging TelstraClear and its predecessors 2.6c per minute, which many observers said was out of kilter with prices around the world.
In a statement released yesterday morning, Webb is quoted as saying 1.13 cents per minute is higher, in exchange-rate adjusted terms, than the US and Canada but lower than Ireland and continental Europe.
The determination is subject to a request for a price review by both parties. Telecom is more likely to do this, but Howard would not discount the possibility that TelstraClear may enter that second stage for an even better deal. If either company decides to request such a review, which they must do within 15 working days of the decision, then the second evaluation will have to be made on the basis of New Zealand costs alone, says Webb.
While an appeal is in progress, the 1.13 cents per minute rate remains.
TelstraClear and Telecom agreed on a number of non-price conditions of interconnect earlier this year. This included a "bill and keep" scheme for internet calls, whereby neither party pays the other for interconnect. This has minimised the effect of the subsequent interconnect pricing negotiations on the data communications world.
Webb is quoted in yesterday’s statement as saying "while the parties could not agree on the interconnection price, which was left for the commission to decide, the application process proved to be an effective blend of commercial negotiation and regulation".
Telecom argued strongly that too low a price-point would detrimentally affect the ability to invest and thereby to innovate. Webb says he took that point on board.
"We accept that we shouldn't undershoot the price and thereby handicap investment in the future."
His determination, he says, allowed "some margin to minimise the effect of [such] undershooting”.
The 1.13 cent/min level represents the 75th percentile of the range of interconnection prices found in an international survey. There was pressure simply to set the price at the median of this range, which was 0.66 c/min.
"We took that as a starting point, and looked at a variety of factors, including [the danger of stifling innovation]. That was a significant factor in the final determination," Webb says.