Govt plans to phase out controversial Telecom levy

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bjhoogs

183 posts

Master Geek

#260129 1-Oct-2009 14:08

NonprayingMantis:

But this comes back to my question:

Assuming all that is true, why then is the government leaving in place the requirement for Telecom to continue to serve these customers with limited price access and local calling?
to quote the Dom Post:
"Mr Joyce said Telecom should still be obliged to provide landlines at rates capped by inflation and unmetered local calls, but should meet the entire cost of serving uneconomic customers with profits it earned from other customers. "

Is voda forced to serve uneconomic customers? no. Is any other telco forced to serve uneconomic customers? I can't think of any.
Sure you might have some uneconomic customers (every business does) but you are never forced to serve them, and in fact, if you are doing your job you try to identify these customers and get rid of them since they destroy shareholder value.

If, as you say, these customers are economical to serve then there should be no need for that requirement – the industry will be lining up to serve these lovely profitable customers.

It seems on one hand the gov are implying the customers are economical (by removing the levy), but then by leaving the requirement in place to continue serving them they are implying that they are not.

The point being: if they were economical then that requirement would not be needed - Telecom (or voda or whoever) would be happy to compete for those customers.

I think Paul is the wrong person to be asking why 'Telecom should still be obliged to provide landlines at rates capped by inflation and unmetered local calls' maybe it is due to a misunderstanding, like the not using phones for gps navigation thing.

Vodafone is currently forced to serve these unecomomic (over copper) customers by providing subsidies to telecom, and those with any sense would be paying less for their poor quality phone service by using home phone wireless (something that telecom don't offer because the uneconomic customer subsidies are far more attractive).

VFNZPaulBrislen

970 posts

Ultimate Geek

Trusted

#260135 1-Oct-2009 14:16

NonprayingMantis:
PaulBrislen: The problem with the TSO as I see it is that it enshrines copper as the only mechanism whereby CNVCs will be offered service, yet the service levels are so low they can be delivered using a 2G GSM cellphone.

14.4kbit/s to 95% of New Zealand, 9.5kbit/s to the remainder.

Clearly the best way to deliver service to those CNVCs is by mobile or satellite service. The new MED document has accepted that and will adjust the situation accordingly.

On top of that, it will role out a rural broadband mandate that will be fiercely contested. Why? Because these customers are not "commercially non-viable" and never have been.

Vodafone estimates we already cover 70% of these customers with our 3G and 3G Extend networks. On top of that you have two Telecom networks covering them (either landline or XT) so we're talking about at least three national networks that cover these customers, plus satellite, plus Kordia's Xtend network...

given all that, how can any of these customers, bar the last couple of percent, be seen to be non-viable?

It's a nonsense and always has been. It's predicated on the analog world idea of communication (that is it's cheaper to phone a local number than one far away, regardless of the technology used) and has no place in the modern world.

Cheers

Paul

But this comes back to my question:

Assuming all that is true, why then is the government leaving in place the requirement for Telecom to continue to serve these customers with limited price access and local calling?
to quote the Dom Post:
"Mr Joyce said Telecom should still be obliged to provide landlines at rates capped by inflation and unmetered local calls, but should meet the entire cost of serving uneconomic customers with profits it earned from other customers. "

Is voda forced to serve uneconomic customers? no. Is any other telco forced to serve uneconomic customers? I can't think of any.
Sure you might have some uneconomic customers (every business does) but you are never forced to serve them, and in fact, if you are doing your job you try to identify these customers and get rid of them since they destroy shareholder value.

If, as you say, these customers are economical to serve then there should be no need for that requirement – the industry will be lining up to serve these lovely profitable customers.

It seems on one hand the gov are implying the customers are economical (by removing the levy), but then by leaving the requirement in place to continue serving them they are implying that they are not.

The point being: if they were economical then that requirement would not be needed - Telecom (or voda or whoever) would be happy to compete for those customers.

I think the whole thing pivots around one point: commercially non-viable.

Telecom bought the network on the basis that it would continue (in perpetuity) to provide a minimum service right across the country. That minimum is pretty low (speeds as mentioned, no right to the service but the right to buy a service) and I don't think we should be removing it any time soon.

What Telecom managed to do in 2001 is convince the government that it should be compensated for that and that the network covered by the TSO should be capped at 2001 levels - that is, new connections aren't included.

Vodafone currently pays Telecom $18m to cover these costs. The more customers we take off Telecom, the more we have to pay Telecom because the share of cost is based on pure market share. In effect we are forced to pay Telecom to compete with us, which is hardly ideal.

In the past five years we've paid Telecom tens of millions of dollars each year to keep these "non-viable" customers attached and every year we've said they're not non-viable.

If Telecom doesn't want them it could have sold the rights to being the provider of last resort (I know CallPlus offered to buy them off Telecom some years ago). That it wants to keep them demonstrates that these customers not only aren't "non-viable" but they are in fact "viable" and very desirable to boot.

Cheers

Paul

Paul Brislen
Head of Corporate Communications
Vodafone

http://forum.vodafone.co.nz

NonprayingMantis

6434 posts

Uber Geek

#260203 1-Oct-2009 15:58

PaulBrislen:

I think the whole thing pivots around one point: commercially non-viable.

Telecom bought the network on the basis that it would continue (in perpetuity) to provide a minimum service right across the country. That minimum is pretty low (speeds as mentioned, no right to the service but the right to buy a service) and I don't think we should be removing it any time soon.

If Telecom weren't forced to provide services to those rural customers, then voda et al would be allowed to compete for them effectively.
If you really believed they are commercially viable, then shouldn't you be in favour of the gov removing Telecom's requirements to keep the access price at a certian level and give free local calling? If that requirement were removed, then you could move in with your fanatastic mobile offering and make heaps of profit on these customers you claim are fully viable. So why arn't you telling thwe govenrment to remove that restirction?
You actually claim above that the restriction shouldn't be removed, but that seems to contradict your claim that the customers are commerically viable. Don't you want these lovely viable customers?

What Telecom managed to do in 2001 is convince the government that it should be compensated for that and that the network covered by the TSO should be capped at 2001 levels - that is, new connections aren't included.

I don't know the history but that seems to makes sense to me. At the time of buying the network there was basically no competition - so it is no great ask to have the same pricing accross the nation - the profits offset the losses.

When the market started getting competitive though, it became apparent that the competitors (cush as voda) were only interesting in competing in urban areas, and still are (unbundled many rural exchanges recently?) . thus taking the profitable customers away from telecom, but not the loss making ones.
By forcing telecom to provide services to the CNVCs they are hampering Telecom's ability to compete.

Making the industry contribute in proportion to their market share is the fairest way of levelling the playing field as much as possible

Vodafone currently pays Telecom $18m to cover these costs. The more customers we take off Telecom, the more we have to pay Telecom because the share of cost is based on pure market share. In effect we are forced to pay Telecom to compete with us, which is hardly ideal.

not really, The total extra cost of servicing these customers comes to $70m according to the determination. you are forced to pay $18m of that cost, in line with your market share. Telecom pays (IIRC) something like $40m+ of that cost. They take a much bigger hit on those customers than you do (as they should - they have the biggest market share)

In the past five years we've paid Telecom tens of millions of dollars each year to keep these "non-viable" customers attached and every year we've said they're not non-viable.

yes, you say that, but how many rural exchanges have you unbundled? How many multi-access radio stations have you installed? If they were viable, then you would go after them, yet you don't.

If Telecom doesn't want them it could have sold the rights to being the provider of last resort (I know CallPlus offered to buy them off Telecom some years ago). That it wants to keep them demonstrates that these customers not only aren't "non-viable" but they are in fact "viable" and very desirable to boot.

Cheers

Paul

I'm not aware of that callplus deal, but my understanding of the TSO was that Telecom couldn't offload the customers even if it wanted to. Hence the quote from Joyce "Telecom should still be obliged to provide landlines at rates capped by inflation and unmetered local calls" If Telecom could opt to not serve those customers, then they are not obliged to serve them.

Assuming you are correct, then just because the callplus deal fell through does not mean the customers are viable, deals can fall through for any number of reasons.

Ragnor

8223 posts

Uber Geek

Trusted

#260372 1-Oct-2009 22:52

This blog post sums it up perfectly with a nice graph too, makes it fairly obvious to anyone thinking logically that the status quo is a bit of a rort.

http://www.progressiveturmoil.com/2009/09/30/tso-reform/

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