UPDATE 2: Interconnection rate halved by commissioner

TelstraClear is predicting the telecommunications commissioner's decision to halve the interconnection rate between it and Telecom will lead to a more competitive industry, but Telecom is voicing concerns.

TelstraClear is predicting the telecommunications commissioner’s decision to halve the interconnection rate between it and Telecom will lead to a more competitive industry, but Telecom is voicing concerns.

Commissioner Douglas Webb has set the interconnection rate at 1.13 cents per minute. 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 this 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.

TelstraClear chief executive Rosemary Howard says New Zealand's number two telco is pleased with the commissioner's decision.

The decision "sets the scene for a more competitive industry and provides certainty which will enable more vigorous competition," she says in a statement.

"It highlights the exorbitant prices demanded by Telecom for more than a decade.

"The commissioner's office was created to correct market failure and the move to 1.13c per minute highlights the extent of that failure."

A statement posted on Telecom's website says the incumbent is "concerned that today's decision could lead to lower investment in New Zealand's future infrastructure."

Telecom has previously argued that a reduced interconnection fee would lead to reduced revenue for it and thus less investment by it in New Zealand's telecommunications infrastructure.

Chief operating officer Simon Moutter is quoted as saying "there seems to be insufficient recognition by the commission about what is required to encourage investment in infrastructure and technology".

In September, TelstraClear regulatory affairs spokesman Grant Forsyth told Computerworld claims by Telecom that lowering the interconnection fee would affect its infrastructure investments were "a naked plea for retention of its dominant position - we can only dream of that amount of retained revenue".

Moutter says Telecom is considering its next step.

Ernie Newman, chief executive of telecommunications user group Tuanz, has welcomed the decision.

"We applaud it and it's a vindication of the view of Telecom's competitors that they were being overcharged and competition has been stifled as a result."

The price may get even lower in the future, Newman says.

"Internationally, interconnection charges are trending downward and we see these prices as a moving target."

Tuanz will be looking for regular reviews so users gain the full ongoing benefit from falling prices, he says.

The long-awaited decision from the commissioner follows the resolution by Telecom and TelstraClear of several other issues. However, the interconnection price always remained a bone of contention.

Webb is quoted in the 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".

TelstraClear applied earlier this year for determinations on interconnection and wholesale prices and a determination is yet to be made on wholesale.

While visiting New Zealand last month, Telstra chairman Bob Mansfield said Telstra wouldn't have acquired Clear to form TelstraClear if the New Zealand government hadn't passed the Telecommunications Act, which established the office of the Telecommunications Commissioner and gave him the power to make determinations.

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