Telcos at war: the role of the peacemaker

From the moment Telecom's interconnection agreements with TelstraSaturn and Clear expired last year, there were rumours of serious disagreement between Telecom and TelstraClear over a new interconnection deal.

From the moment Telecom’s interconnection agreements with TelstraSaturn and Clear expired last year, there were rumours of serious disagreement between Telecom and TelstraClear over a new interconnection deal.

Publicly the two parties mouthed platitudes about how keen they were to work together, but things were obviously fraught and came to a head on May 16 when TelstraClear filed an application with the Commerce Commission for a determination on interconnection pricing and wholesaling issues.

Shortly afterwards Telecom put in an application, also requesting a determination by Telecommunications Commissioner Douglas Webb on interconnection prices.

TelstraClear says Telecom’s requested price for interconnection with Telecom’s network — 2.6c per minute — is too high and Telecom says TelstraClear owes it $40 million in unpaid bills.

Webb and the Telecommunications Act of 2001 are going to be put to the test; so what, exactly, is the procedure Webb has to follow and when will the dust settle on this business?

Under the act, the Commerce Commission — Webb’s office is within it — must notify the parties to any application for a determination. It must also give the other party a copy of the applying party’s application within 10 working days of the application being received — that is, in a few days time. Webb must also ask the parties to comment on the matter, in writing, within that timeframe.

Once that’s done, the commission must decide whether to investigate the matter, inform the parties and the public of his decision and ask the parties to make submissions — as opposed to mere comment — within a further 10 working days.

If Webb deems that anyone else needs to be involved in the process, he must consult them. If an investigation is to go ahead and a determination made, he has 40 working days to come up with one if it doesn’t involve a directive on pricing, or 50 if it does. If those deadlines can’t be met, the parties must be given an explanation.

Commerce Commission spokesman Osmond Borthwick says the Telecommunications Act allows two applications to be worked on simultaneously. Borthwick would not be drawn when asked if getting two applications in as many days was a surprise. “I don’t think we had any particular anticipation, but the commission is considering how to best deal with it.”

Telecommunications Users Association chief executive Ernie Newman says he doesn’t know whether having more than one application or determination before the commission is normal in countries, such as Ireland, which have a telecommunications commissioner.

“My first reaction is that it’s a bit of tit-for-tat, which underscores the great difficulty these two companies have in talking about anything.”

Newman doesn’t believe there’ll be a flood of applications overwhelming the commission.

“In theory it could happen, but I suspect it won’t — there are a number of smaller carriers who are disgruntled with their interconnection agreements, but they’re more likely to wait for the TelstraClear result as a benchmark.”

The cost involved in taking a grievance to application stage would put many smaller players off, he says.

There are no New Zealand precedents for TelstraClear and Telecom’s applications, but Newman says there are plenty of examples from overseas that show how it should be done. “Tuanz has always been attracted by the EC process — a lot of European countries have similar characteristics to New Zealand.” Ireland, the Netherlands and Scandinavia are “really good models for New Zealand”, he says.

Looking across the ditch for precedents is not necessarily a good thing, he says. “We need to raise our sights and look further than Australia — there’s too much temptation for us to follow the Australian model and it doesn’t necessarily fit ours well.”

Australian analyst Paul Budde says TelstraClear’s application has merit in saying that 2.6c a minute is way above international benchmarks, but Telecom also has a point in wanting its bills paid by TelstraClear. “If [Telecom subsidiary] AAPT did that in Australia, Telstra would cut them off.”

Telecom’s attitude is no worse that Telstra’s in Australia and, like incumbent telcos around the world, Telecom and Telstra “have been extremely successful at protecting every little niche and corner of their empire”.

The two applications before Webb will test his negotiating skills, Budde says.

“He’s only got 40 or 50 working days — there’s no way he can hire an army of economists and statisticians to sort it all out.”

The result will come from compromise, not a strict legalistic approach, he says. “You need an arbitrator in a process like this.”

That Telecom and TelstraClear have been unable to agree in their own negotiations doesn’t surprise him. “That’s why you need a commissioner.”

And just when it seemed relations between Telecom and TelstraClear couldn’t get any worse, TelstraClear, days after making its application to the commission, applied to the High Court for an interim injunction to get Telecom to give it 62 links for use in call centres it says it requested in August.

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