$180m in Telecom fees at stake as ComCom told to redo its sums

ABOVE: TSO charges for a typical year (July 2007 to June 2008). The Commerce Commission has blacked out part of Telecom's entry. The levy is determined by the commission, but rival telcos pay it directly to Telecom.

The Commerce Commission has been told by the High Court at Wellington to re-do its TSO (Telecommunications Service Levy) sums for the 2004/2005 and 2005/2006 years.

Rival phone companies paid Telecom around $52 million over the two-year period to compensate it for servicing around 58,000 rural customers deemed “commercial non-viable” under the Telecommunications Act (2001).

The ruling was made on April 1, but under embargo until yesterday.

The Commerce Commission has until May 3 to file an appeal.

Yesterday, a spokeswoman would only tell NBR that the watchdog is still digesting the decision.

Each year, under the Act, the commission calculates the cost of Telecom providing a home phone, and access to dial-up internet, for the non-viable rural customers.

Habitually the figure is around $70 million. Telecom itself is allocated most of the cost, under a bizarre and complex “thought experiment” formula, but the amount is purely notional.

The lion’s share of money that actually changes hands - around $26 million each year - was borne by Vodafone (at $15 million to $20 million), with Telstra Clear (around $4 million) shouldering most of the balance. ISPs with offering voice plans, including Orcon, WorldXChange CallPlus and Woosh, also chip in (see table above).

The 2004/2005-2005/2006 case turned on whether the commission should factor in wireless and mobile technology as it calculated what constituted an “efficient network” for servicing the commercially non-viable rural customers.

Justice Winkelman said that it did, and that the commission must re-do its sums.

If the new amount is lower, then Vodafone wants its money back with interest.

The unholy mess: three cases, two more on the way
Further, Vodafone considers that Justice Winkelman’s decision should be seen as a precedent for two other TSO levy cases, with two more in the pipeline.

One, covering the 2003/2004 TSO levy went through the High Court and the Court of Appeal before Vodafone, last week, was granted leave to appeal the levy by the Supreme Court.

And yet another, covering the 2006/2007 and 2007/2008 TSO determinations, is currently before the High Court.

Meanwhile, Vodafone is sure to mount a High Court challenge the commission’s 2008/2009 determination (still in draft stage).

And the watch dog has yet to start on its 2009/2010 TSO levy calculations.

Mercifully - none-the-least for taxpayers helping to bankroll the millions in court costs - 2009/2010 is the final year of the current TSO levy. Communications minister Steven Joyce is shepherding in a new, contestable rural broadband fund, which all telcos (including Telecom) will pay into.

The millions at stake
If Vodafone succeeds in getting the new every TSO year under question recalculated - that is 2003/2004 through to the current period - then around $182 million in TSO levies paid by competitors to Telecom will have to be recalculated.

Vodafone’s share is around $126 million, and it keenly wants a chunk of it back, including cost of money.

Telecom: roll it all up into one case
Telecom, which both supports TSO reform but is fighting its corner for levies determined under the outgoing system, wants the mess of cases consolidated.

In a statement to the NXZ, Telecom group general counsel Tristan Gilbertson wants all outstanding TSO matters to be corralled into one Supreme Court case.

The ruling announced yesterday was inconsistent with the recent Court of Appeal ruling on the 2004/2005 and 2005/2006 TSO case now before the Supreme Court, said Mr Gilbertson.

Telecom shares (NZX: TEL) finished yesterday's session down 2 cents (0.89%) to $2.22.