Xtra price cuts revive predatory pricing charges

Is Xtra's new pricing an indication of the failure of the Telecom ISP's existing pricing and marketing plans--or part of a plan to buy up a large chunk of the local industry?

Is Xtra's new pricing an indication of the failure of the Telecom ISP's existing pricing and marketing plans--or part of a plan to buy up a large chunk of the local industry?

Such are the theories in the Internet industry in the wake of cuts of up to 64% in Xtra's pricing--including extremely controversial rates for 0800 access. The new pricing was originally scheduled for September, but was suddenly brought forward for an August 8 announcement.

"Internet services head Chris Tyler's still the blue-eyed boy at Telecom. This is very much an aggressive rather than a defensive move," says one @IDG source. "Telecom just wants the market--and it's prepared to buy it. Voyager is the obvious candidate for a buyout, but it's doubtful if the $200 per customer Telecom is reported to be offering would be enough.

"The next biggest target is Ihug, which has been run up in anticipation of a buy-out. But that customer base is there for the flat-rate pricing. They'd disappear pretty quickly if they had to pay $2.50 an hour to Telecom."

Another factor may be the prospective entry of Clear Communications into the ISP market. An hourly rate of $3 an hour from Clear has already been rumoured.

Meanwhile, at least two groups of ISPs are preparing complaints under the Commerce Act against Xtra, in the wake of the Telecom-owned ISP's radical price cuts.

The new $2.50 an hour rate for direct-dial access in Auckland, Wellington and Christchurch has been described as predatory by some competitors, especially given Xtra's start-up costs, but the $4.95 an hour 0800 access rate is far more controversial. The $2.45 an hour premium over standard Xtra charges for 0800 access is a lower rate than any other business customer can get for even local 0800 services. Some 0800 distance customers can pay up to $36 an hour.

No one was willing to be indentified as a complainant, but Voyager's John O'Hara and Iconz' Ron Woodrow confirmed that, pending discussions with Telecom, they were keeping all possible options open. Both men say their business relationships with Telecom have been damaged by the "predatory" pricing moves. This is exactly what Telecom, which supplies Internet and telecommunications services to ISPs, had hoped to avoid.

"The top half-dozen ISPs were called by their Telecom account managers shortly before the announcement and told there would be an announcement and not to get too upset," says one industry source. "They've subsequently been back in touch to emphasise they're on the ISPs' side. Clearly, they're trying to create the impression that Xtra and Telecom are separate entities."

Woodrow says he is "flabbergasted that Telecom would make such a move without consultation, especially given that we're a Telecom business partner. We've had no response from Telecom to our concerns and until then we'll reserve our options. We've had other ISPs call us to discuss the situation and I think the whole industry is devastated by what's happened."

O'Hara warns that the dissatisfaction might well spread beyond the Internet industry, especially over the 0800 rates.

Some ISPs, however, are more relaxed about the changes. David Dix, owner of KCBBS, which provides leased-line access to businesses, says "the pricing doesn't affect me--but it's obvious Xtra is serious trouble if they're ditching their pricing this quickly."

Peter Belt, owner of WebWorld, says his company, as a niche operator, would not be put out of business by Xtra's moves. "I'm not concerned for the survival of my business, but it's fair to say I'm a little pissed off about it. It's going to hurt my income, but that's business."

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