Telecom's move on Internet calls sends industry into a spin

As the industry, consumer groups and government departments scrambled to make sense of Telecom's move to force home Internet users to a new 0867 network - or pay two cents a minute for local calls - the most striking aspect of the plan, which arguably contravenes the Kiwi Share, is the absence of warning or consultation before it was announced yesterday to ISPs.

Under new terms revealed by Telecom yesterday, it will cost home Internet users two cents a minute to make a local call to their ISP – unless users and ISPs switch to numbers in a new 0867 range, which will carry a lower service guarantee.

As the industry, consumer groups and government departments scrambled to make sense of Telecom's move, announced in letters sent to most of the country's ISPs yesterday afternoon, one thing was clear – Telecom appears to have consulted nobody before making it.

Telecom maintains that change will "significantly improve [its] ability to manage the network impacts of the huge increases in Internet traffic" but there is considerable disquiet at a plan that appears to stretch the provisions of the Kiwi Share, by charging residential users to dial a local number.

In what it says is a focus on "heavy users", Telecom's new terms allow home Internet users 10 hours' a month connection to an ISP over the standard telephone network before the two cents a minute charge applies.

Telecom says calls to the new 0867 numbers will go through Telecom's intelligent network, allowing Internet dial-up traffic "to be managed in a more cost-effective manner, and thereby ensure that voice customers are given priority quality of service during periods of network overload or emergency."

The advantages to either residential customers or other ISPs seem slender. Telecom is not promising enhanced performance from its new network. And although ISPs will be able adopt one 0867 number nationwide, the 0867 network is not IPNet, so calls made from outside the local calling area of an ISP's POP will still attract toll charges – and Xtra, under its new flat-rate plan, will still offer IPNet dial-up cheaper than its competing ISPs say they are able to buy it from Telecom.

In a background section attached to yesterday's letter, Telecom says the "mushrooming growth in the number of dial-up Internet users and their usage in New Zealand is approaching a level that, if it grows unchecked, may compromise the integrity of the PSTN.

"Pressure on the PSTN is exacerbated by the combination of free residential local calls and increasing demand for flat rate Internet packages. This is resulting in inefficient and excessive usage by a significant proportion of residential Internet users."

This is not the first time Telecom has expressed concern about stress being placed on its network by Internet use. It suffered problems in the second half of 1996, including a critical shortage of digital capacity at Auckland's Mayoral Drive exchange, as the consumer Internet boom began.

That boom was triggered in part by aggressive marketing and price-cutting from the then-fledgling Xtra, and exacerbated by what appeared to be a failure by network planners to provision for demand,. There were also problems with Telecom's ageing NEC switches, which are a generation behind the Nortel digital switches operated by Clear and Saturn.

Now, as Xtra and Clear Net embrace the flat-rate model being blamed by Telecom for network congestion, the company has apparently moved to find a "cost-effective" means of preventing a new round of capacity problems.

"They were crowing about the flat-rate model last week in every national newspaper," said Ihug director Tim Wood last night. "Here we have a company that takes hundreds of millions of dollars out in shareholder dividends, spends nearly nothing on upgrading their antique switches and then tries to charge the public for the failure

on ther behalf to provision.

"It means they have access to the ISP's customers, they control quality of service and force ISP's who have spent considerable money on marketing exisiting phone lines to change. This is a blatant attempt to circumvent Kiwi Share, an attempt to avoid paying their share of interconnect revenue and, if you ask me, the thin edge of the wedge in regards to the next step - local call charges."

Craig Anderson, head of Auckland ISP Iprolink said he suspected the the main motivation for Telecom was to avoid the 1.25 cents per minute interconnect charge it was paying for calls terminated with Clear.

"Clear Net has been reaping a nice profit of $75 cents an hour for everyone connected to their ISP on top of whatever they charge," said Anderson. "Ihug moved to Clear dial-in lines a few months ago and is rumored to be getting a good portion of this back from Clear.

"Since Ihug and Clear Net, and possibly others, are getting this revenue and most other ISPs are not, the move to 0867 benefits most ISPs by allowing us to compete on an equal basis. It also provides us with number portability and provides us with one-number access.

"I have seen no reason why this is a bad thing in either the short or long term and I am always very suspicious of any move by Telecom," said Anderson.

Most other ISPs appear less relaxed about Telecom's plans, and Alan Brown of Manawatu Internet questioned Telecom's contention that its move was necessary because essential 111 services were being endangered by network congestion

"The only time a 111 call can't be put through is when no dial tone is available and the 0867 system promises not to drop calls in progress, so is unlikely to have the slightest effect on emergency services availability. 111 calls take priority over all other switch services, to the point where calls in progress will be dropped to make them go through," said Brown.

Brown also questioned why, "while the rest of the world pursues a path of tighter integration of voice and data services, Telecom is attempting to stratify them out?"

It appeared last night that support for collective actions, including a petition to the government backed by the Internet Society of New Zealand (although Isocnz chairman Jim Higgins seemed to play down the impact of the changes), was growing.

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