Monday, January 15, 2007

Telecom raises local line rentals

Having clapped with glee about the government’s decimation of much of Telecom’s property rights, there is now noise (from only two sources) that Telecom is increasing local residential line rentals of between $1 and $1.84 a month. Nevertheless, even though local fixed line phones are not compulsory, people will moan about it. A few will live in Wellington and Christchurch where they DO have a choice, but where the majority still use Telecom. What does that tell you?
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Telecom can’t just increase local line rentals willy nilly though, it is only allowed to do so under the Kiwi Share held by the government. Now from my point of view this is not an infringement on Telecom’s property rights because this was negotiated as part of the privatisation, but it does mean that every year Telecom hikes up the fixed line rental because it can quote the Kiwi Share as justification. Whether it would do it more often and more without the Kiwi Share is debatable.
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You see, unlike most countries, the government requires Telecom (through the Kiwi Share) to provide a flat rate unlimited free call option for local calls. In Australia you pay per call, in the UK you pay per minute per call, in the US it varies, so in NZ if you are a heavy user of the phone for local calls it is a pretty good deal, a particularly good deal if you use the internet for dialup access (which is perhaps one reason why New Zealand had quick takeup of dialup internet, but not so quick for broadband).
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New Zealand fixed telephone line customers don’t think twice about making very long calls on local lines, including dialing up their ISP. Those who use the phone occasionally effectively cross subsidise the rest. However there is more. The Kiwi Share also requires Telecom to charge rural customers no more than urban customers. This is where things really become interesting. The cost of providing a rural telephone line is many times in excess of the local line rental. I recall a government study undertaken in the late 1990s which indicated that the average cost of providing a phone to a rural property was around ten times that of the line rental. Don’t forget that these rural properties are always considered residential, when they are almost always farms – these would be businesses in the city, but because the farmers LIVE on the properties Telecom is required to charge them the same as if you lived in an apartment in downtown Auckland, where it costs less to provide. Remember business lines are completely outside the Kiwi Share’s ambit.
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Paul Budde, who has long made a career out of commenting on telecommunications for the media (and reprocessing and publishing publicly available information for a fee notice the companies that he has NOT done CONSULTANCY work for) has criticised Telecom because “Prices in technology are dropping and dropping and dropping, and so it's very difficult to argue that these prices should go up”, ignoring that the provision of the line is not just about the capital cost of the line. It is also about the power, the labour costs of maintenance of the lines, power and poles. Budde is right that the marginal costs of making phone calls is tiny, but Telecom is not allowed to recover that cost from residential customers – it has to recover the average cost of providing the fixed line infrastructure nationwide and the marginal costs of local calls from all customers. It is worth noting that I have never ever heard Budde being quoted as an authoritative source from anyone in the industry or government circles, but that the press always trots him out because he is so desperate for attention that they can easily find him willing to comment on these matters. I would trust David Cunliffe on telecommunications more than Paul Budde (and that is saying something!).
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Clearly Telecom charges enough of a margin in main centres that it was economic for the then Telstra-Saturn to lay out a competing residential line network in Wellington (including the Hutt/Kapiti) and Christchurch. Maybe it would have done the same in Auckland had the government not been so willing to give it access to Telecom’s own lines, and local authorities not been so anally retentive about it laying cables in the streets using the RMA to stop it. We wont know under the current environment.
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So what options do you have?

1. Pay the extra and recognise that you are a consumer buying a service from a supplier, and nobody has forced you to buy that service. If you are in a major city you may ask your council what its policy is on new operator laying their own cables to provide a competing network. If you are in the rural hinterland, be grateful you’re probably paying a tenth of the cost of providing you with a phone line and that farms aren’t treated as businesses.
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2. If you are in Christchurch and much of greater Wellington, you can choose Telstra Clear. This is the network it owns, it can charge what it likes.
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3. Abandon your fixed phone line and use a mobile phone.
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4. Use one of the resellers that Telecom is forced to offer its lines to at a government regulated price for local phone access (Ihug and Telstra Clear offer this virtually nationwide).
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5. Set up your own network. Try raising the capital with all the others who complain what a ripoff it is and compete – after all, why waste time at your current job if you’re such a good market analyst? You'll complain Telecom will cut prices to compete with you, well Telstra Clear has managed over 50% market share in Kapiti and between 20 and 30% in Wellington and Christchurch, so work on the basis of doing about that well. Go on, you'll have thousands on your side wanting to stop the "monopoly gouging".
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So what will it be?

4 comments:

Kane Bunce said...

I wonder how much more the fixed line rental will raise as a result of local loop unbundling.

libertyscott said...

Inflation - it can't raise any faster than that due to the Kiwi Share. You can be damned sure it will rise by that amount every year regardless though.

Kane Bunce said...

Well the Telecommunications Amendment Act is certainly going to see a rise in Telecom's expenses, which will see a rise in the price of things that the Kiwi Share doesn't apply to.

Speaking of which, I read on the NZ Herald website yesterday that Labour is considering extending the Kiwi Share to include broadband.

libertyscott said...

Yes, though the other effect will be to defer capital expenditure on items that do little for the bottom line.