Clear Communications proposed to Ihug last November the same complex arbitrage-based system that the free ISP i4free is using.
The system, based on a reading of Telecom's 0867 number contract that will be debated in the Auckland High Court today, redirects calls from i4free's 0867 number to another Telecom number which is associated with Clear's network via number portability.
One key effect of the system is that it brings the Telecom-Clear interconnection agreement back into play - Telecom declared the agreement void for 0867 - bringing Clear interconnect payments of about two cents a minute, which it is sharing with i4free and its parent company CallPlus.
Telecom insists it breaches the 0867 contract and causes network congestion, but has been prevented from disconnecting i4free's service by an interim injunction. I4free claims disconnecting the service represents anti-competitive behaviour on Telecom's part.
Ihug director Tim Wood says he regarded the method as "dodgy" when it was first suggested by Clear shortly after the announcement of 0867 and then in November Clear's Warren King and another manager visited the Ihug offices "with a proposal to get us to do the same thing as i4free. They had a diagram saying this is what we think you should do. We said we didn't think it was really kosher and sent them on their way.
"They wanted to arbitrage and make some money. They'd been desperately trying to get around 0867."
Before Telecom introduced 0867, Ihug had used Clear's network for a substantial portion of its dial-up capacity and had been sharing Clear's interconnect revenue through a similar arbitrage system. But Wood says he felt the subsequent proposal breached the 0867 contract and involved "pretty inefficient trunking."
Ihug has acknowledged receiving compensation from Telecom for the shift to 0867 and reports this week have put the figure at $20 million.
Clear's public affairs manager Ross Inglis says the claim that Clear took the proposal to Ihug is "an interesting technical point - I'm not sure how it informs the debate.
"We didn't put anybody up to this. [CallPlus] came to us and asked for a commercial service and we were happy to come up with a proposal and they chose us on commercial grounds.
"They came to us and said 'can you provide Internet access?'. They knew that we were in the market and that we were the carrier of choice prior to the 0867 regime. It's more than a price issue - it's a quality of network issue.
"Make no mistake - the future of the Internet in this country, and everywhere else in the world, is free access. It's going to happen here, whether it's i4free or somebody else is entirely up to the market."
Telecom says the redirect/portability structure of i4free's calls is causing capacity problems at Auckland's Airedale Street exchange, but a judge last week ordered it not to curb traffic associated with i4free without doing the same to all other ISPs using the exchange.
Telecom spokesperson Linda Sanders says a normal 0867 call "comes through from a customer and goes through the local exchange and to the trunk exchange and then to Airedale Street and then straight off to the ISP.
"With the i4free traffc, it goes from the local exchange to the trunk exchange to Airedale Street, then it goes back to the trunk exchange, then it goes to Clear and then to i4free.
"What happens when it goes back and forth between the trunk exchange and Airedale Street is that we have no visibility of how much is going through to Clear and so some of that traffic is not reaching Clear, and it's going backwards and forwards. That's when you get the attack-dialling setting in. So there's all this extra traffic sloshing around, taking up extra capacity and not finding a home."
Meanwhile, Ihug, having lifted its controversial network block on i4free's Web site on Friday may have found that the move against i4free simply piqued the curiousity of its customers. The Ihug help desk was very busy yesterday helping customers who had downloaded and run the i4free installer to restore their original settings.
Ihug helpdesk supervisor Ian Fittall says that, among other things the i4free installer changes the user's default home page to the TVNZ portal nzoom.com, "which is a fairly minor irritant. It also changes the proxy, which is kind of dodgy because it's actually changing it in the registry to proxy.i4free.co.nz, which means you can't connect without going to i4free. The registry has to either be restored or Windows reinstalled."
While i4free's service is free, its helpdesk costs $2.25 per minute and Fittall says customer have been unwilling to pay to have their settings restored.