Telecom says it wants the Telecommunications Service Obligation overhauled as much as Vodafone, which it accuses of posturing on the issue.

“There’s been some mischief making. They’re trying to make out that Telecom is turning the scrum,” says Telecom head of external relations Mark Watts.

Mr Watts points out that all members of the Telecommunications Carriers Forum (TCF), which includes Telecom, Vodafone and TelstraClear, produced a pre-election report calling for major changes to the TSO (Telecommunications Service Obligation).

Telecom supports the TCF’s call for the TSO to be contestable. All telcos should be able to tender to provide service to the 60,000 or so non-commercial customers covered by the TSO, most of whom live in far-flung rural areas.

Telecom also supports the TCF’s call for the TSO to be technology-neutral. Currently, Telecom is required to service the remote customers, using copper landlines. “Technology has galloped along in the past 10 to 15 years,” says Mr Watts. "Everybody recognises that."

Vodafone, backed by Tuanz, has called for the TSO to be scrapped altogether in favour of a new vehicle for reaching the 60,000 or so “commercially non-viable” customers, many of whom could be covered on a profitable basis through cellular networks, it says.

Mr Watts says given that Telecom shares Vodafone's stance on contestibility of TSO contracts, and use of alternative technologies to reach the customers involved, the difference between the two companies' "reform" and "scrap it" policies comes down to semantics.

Created by the Telecommunications Act (2001), and the successor to the Kiwishare, the TSO, requires Telecom to provide a basic landline residential phone service for 60,000 or so people who live in far flung areas, making them “commercially non-viable”. In turn, Telecom is reimbursed for covering the commercially non-viable customers through funds raised by a levy on all telecommunications operators.

Because the TSO’s complex formula means Telecom itself contributes a majority of the cost of covering the non-viable customers, the company would receive only around half of the $70.7 million the Commerce Commission has determined in its TSO draft for the 2007/2008 year, says Mr Watts.

He acknowledges that newcomer NZ Communications is being required to pay a TSO levy before it has even signed a customer, but says the amount makes it a non-issue: “It’s not $700,000; it’s not $7000; it’s $700”.

Vodafone, for its part, says it has been required to pay Telecom $75.7 million plus interest over the past five years under the TSO. That money could have gone to extending its mobile network to cover most of the rural customers guaranteed service under the TSO, says Vodafone.

The TSO had been under review in the months leading up to the election. Incoming Communications Minister Steven Joyce is currently taking briefings on the issue.