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Telecom Calculates TSO Loss

Telecom has evaluated its Telecommunications Service Obligation (TSO) loss at $226 million for the period 20 December 2001 to 30 June 2002 – or $425 million on an annual basis.

Telecom has given the Commerce Commission its audited assessment of the TSO loss. Under the Telecommunications Act, TSO losses are shared among the industry players.

“We have spent millions of dollars and nine months work building what we believe is the most accurate and detailed model in the world,” said Telecom General Manager Government and Industry Relations, Bruce Parkes.

“We worked closely with PricewaterhouseCoopers of London in assessing the figure and the model has been audited by KPMG.

“The model has identified that the largest groups of loss-making customers are remote rural customers and high Internet users in both urban and rural areas."

The TSO loss is larger than conservative estimates produced under the old regime because of three big changes, Mr Parkes said.

“They are the new methodology required by the legislation, the growing cost of providing free calls to the Internet and the rising cost of capital to fund our spending.

“The Act’s focus on commercially non-viable customers has required us to produce highly accurate figures on very small groups of customers, rather than averaging across large segments of the population, as we have done until now. That means individual losses are accurately captured, rather than being hidden behind averages,” Mr Parkes said.

“Calls to the Internet have grown phenomenally and now account for more than 75% of total local calling. As we can’t charge for those calls, they contribute an increasing amount to our TSO losses."

Mr Parkes said the cost of capital required to fund spending was also a factor in the revised assessment.

“Telecom’s view of the cost of capital has risen from 11% to 13.2% - mainly driven by worldwide negative sentiment towards investment in the risky telecommunications business.

“That means it’s more expensive to go out on the market and raise funds for investment in next generation networks and communications services.

“The issues involved here are huge in dollar terms and very complex. We’ ll be working them through with the Commission in the coming weeks. We will be re-running the model incorporating some different variables requested by the Commission.

“As we go down that process, this figure is an important wake-up call to the whole industry about the cost of delivering the TSO,” Mr Parkes said.


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