Telecom talks up interconnection price

Telecom is invoking issues ranging from the forecast US-NZ dollar exchange rate to whether a payphone booth is a building to argue for a higher price of interconnection between telcos.

Telecom is invoking issues ranging from the forecast US-New Zealand dollar exchange rate to whether a payphone booth is a building to argue for a higher price of interconnection between telcos.

The Commerce Commission’s conference on the subject took up two days this week.

The telecommunications commissioner and his staff, who work within the Commerce Commission, have arrived at a draft determination of 1.21 to 1.42 cents a minute for interconnection, representing the third quartile of a benchmark of charges by international telcos.

Telecom argues for a charge closer to the 2.6 cents currently in place as a result of “commercial negotiation”.

Telecom operations chief Simon Moutter paints a picture of a Telecom less likely to afford vital upgrades to its fundamental infrastructure or to satisfy its shareholders with good dividends and keep them investing, if it were handicapped with interconnect payments in the lower part of the range. There is even a veiled threat to pull out of at least parts of the telecommunications industry.

“It is a wrong assumption to suppose that Telecom will always be the investor of last resort in New Zealand’s telecommunications infrastructure,” Moutter says.

The company has to battle not only external pricing and competition but internal contention among its own business units for funding, he says. Here fundamental infrastructure is at a disadvantage, because it can only plead “retained revenue”, not large amounts of profitable new business from leading-edge technologies.

The telecomms industry as a whole is already under stress, with investors backing out and credit ratings sinking throughout the world, says Moutter. A reformed TSO -- telecommunications service obligation -- and unfavourable wholesale rates for the sale of services to other telcos will leave Telecom constrained, he says.

Commercial negotiation gives a better indication of a fair level of pricing than benchmarking, Moutter says. Speaking from his experience in the electricity market, Moutter suggests that price regulation and regulated separation of line and generation companies had, in the end, achieved little or no benefit for the consumer. Telecomms competition is thriving without regulation, he claims, pointing to the time, not so many years ago, when “it cost dollars per minute to call Australia”. The commission’s deliberations, he says, amount to “another regulatory solution looking for a problem”.

Other Telecom representatives and their retained accountants and economists argue that the Commerce Commission is in danger of wrongly interpreting the Telecommunications Act at several points, principally when deciding what the definitions of designated and specified services include.

Arguments were put up that certain configurations of mobile-to-fixed and fixed-to-mobile calls could not be included in Telecom’s public switched telephone network, and therefore should be exempt from the controls on that network, and that the necessity for Telecom to provide extra links to carry a call to its destination -- because the rival provider did not want to put an access node closer to the call’s origination point -- should not be a cost to Telecom.

Clauses in the definition of the PSTN (public switched telephone network) refer to the termination of a call in “the end-user’s building”. Telecom advisers argue that a payphone booth could hardly be called a building, and even if it could, it did not belong to the “end user” standing in it. Therefore, they argue, payphone calls are not part of the PSTN, are not designated or specified services, and should not come under the commissioner’s jurisdiction.

Much about the benchmark calculations depends on forecasts of actual currency exchange rates, Telecom pleaded at the start of the second day. The commission’s forecasts of these, at between 50 and 55 US cents to the dollar, were unduly optimistic. That, it was argued, skews the whole interconnection calculation to the disadvantage of Telecom.

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