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ISPANZ Refutes Telecom’s Rosy Picture

ISPANZ Refutes Telecom’s Rosy Picture
Telecom engaged in across-the-board UBS price squeeze

Media Release
Nov 1, 2006

Telecom chief executive Theresa Gattung yesterday presented a rosy and distorted picture of progress in the wholesale broadband market since the Government’s May 3 Stocktake announcement.

At this very moment the company is unfairly damaging ISPs ability to compete, by use of a blatant price squeeze on the core UBS broadband products.

“This was a very unfortunate speech and shows the company is still prepared to use large dollops of ‘confusion’ to get its way,” says ISPANZ President David Diprose.

Gattung yesterday made a series of statements which ISPANZ vigorously refutes. In particular ISPANZ is concerned with the implication that the price squeeze issue applies only to the entry level price of unconstrained broadband plans.

“Telecom seems to think we claim that there is a price squeeze on just the entry level broadband product, when in fact we have provided substantive economic analysis that shows that the price squeeze is right across the product range when you take into account the other costs of providing the full service. There are no positive margins with the current UBS pricing,” says ISPANZ’ Diprose.

“Telecom is asking its wholesale customers to pay up to $7 per month per customer more than we pay today, for an upgrade that costs them nothing and that they have already given to their retail customers for no charge.”

ISPANZ points out that Telecom has well and truly broken its Wholesale Charter, which Telecom had presented as a key plank to in its approach to the new environment.

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“Principle 2 of the charter states that “the price for such products will be negotiated on a ‘retail minus’ basis such that an efficient and effective wholesale customer can compete with Telecom at retail.”

“Why then do we pay Telecom $31.23 incl GST for just the bitstream pipe when their retail customers pay only $29.95 for the complete end product?” asks Diprose.

“They also broke other aspects of the charter by never negotiating the UBS prices with us, and not giving us 30 days notice of the prices.”

Telecom brings out the tired argument that the regulated price is set by the Telecommunications Commissioner. This is obviously true and ISPANZ has approached the Commissioner on the price setting issue. However, the argument glosses over the fact that Telecom also sells commercial UBS products with pricing entirely within its control. Note also that it is the commercial product that ISPs outside of ihug and CallPlus are provided with.

Telecom has again and again been forced to improve its broadband offerings through the innovation and sharp pricing of competing ISPs, and by ISPs appealing to regulation at great expense.

Note that full speed broadband is only available because ihug and CallPlus won it in a bitstream determination while Telecom fought against it for over a year claiming tens of thousands of customers would lose service. Surprise, surprise – that hasn’t happened.



Follows is a further point-by-point rebuttal of broadband issues in Gattung’s speech:

* Gattung lists infrastructure investments and new services in the market since the Government’s Stocktake announcement May 3, but claims investment in new technology can not be attributed to focusing on competition on the Telecom network.

+ Many of the announcements have been accompanied by statements that they are a result of the unbundling decision. Enabling competition on the monopoly DSL network has been crucial to bolstering confidence and increasing investment by competitors.

* Gattung says prices for business broadband have plummeted.

+ Business broadband prices have ‘plummeted’ this year because Telecom realised it couldn’t get away with it any longer. However, they still charge an unreasonable premium for full speed in both directions.

* Telecom has separated retail and wholesale divisions and has proposed an operationally separate model to the Select Committee.

+ Telecom's operational separation model is a watered down shadow of the British Telecom Openreach model. We expect the Government will require them to undergo a more robust separation that more closely resembles the BT model.

* Gattung says Telecom has implemented “completely independent wholesale staff short term performance incentives that are 100 per cent wholesale focused”.

+ Telecom wholesale's performance incentives do not appear to be wholesale customer focused at all. It appears they are bonused on revenue targets that do not allow for setting a fair retail-minus UBS price. By Telecom’s continuing omission of mention of long term incentives, it would appear wholesale management or staff are also incented on the broader Telecom performance including Xtra retail.

* Provisioning and repair times for Telecom retail and Wholesale are very similar.

+ Telecom has improved its provisioning so that some metrics show acceptable wholesale performance that is on a par with retail. However, they don't report on metrics that still show a very different picture, such as UBS provisioning time if you want to provision NCA tolls as well; or even worse if the wholesale end-user wants their service re-provisioned to a new address.

* Gattung says working groups with industry are working.

+ The TCF LLU working groups are showing signs of positive progress. However, the two “quick wins” identified by ISPANZ back in June have seen little progress. Four months later there has been no substantive progress with enhanced real-time capable UBS, and only marginal progress with information disclosure from Telecom.

* Gattung says Telecom is listening to wholesale customers and has put a proposal for upgrading plans to full speed.

+ Telecom has not listened to our feedback and continues to ignore our request for a fair retail-minus UBS price. Its so-called incentive proposal (which they said they wanted to keep out of the media & then included in the speech!) does not address our concerns at all.

* Gattung says some in the industry are making claims and allegations that are patently untrue but Telecom has bitten its tongue.

+ If that is the case then let’s hear about them and debate them. ISPANZ is more than willing to have that discussion with Telecom.


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