Rural phone services to cost more

Telecom expects people who live in rural areas and small towns to pay more for phone services than city-dwellers, after the Commerce Commission's decision to set different prices for local loop access depending on where people live.

But the commission does not expect an increase in rural phone line rentals, which it says Telecom could legally retail at below cost.

Its decision to "de-average" the local loop has raised fears that the 27 per cent of people who live outside New Zealand's main centres could face a rise in phone line rentals of up to $12 a month, but analysts and rural groups are struggling to predict the fallout.

Telecom spokesman Mark Watts says Telecom expects de-averaged wholesale prices will ultimately flow through to retail prices, but "the extent and timing of that pass-through is unclear".

The Commerce Commission ruled that Telecom Retail and other service providers must pay Telecom's Access Network Service business $41.21 a month, including gst, for access to the local loop outside the main urban centres, where the price of a phone line is $43.60.

This leaves a margin of $2.39 a month, which is too little to cover Telecom Retail's other costs.

The Telecommunications Services Obligation prevents Telecom from increasing phone line rentals faster than the rate of inflation without pleading economic necessity, but the TSO is under review.

Mr Watts says the price cap applies only to phone line rentals and local calling, and Telecom is free to adjust prices for toll calls and broadband. "Ultimately we'll look to cover costs."

A Commerce Commission spokesperson says the commission does not expect line rentals to rise above the inflation rate in rural areas, and a negative margin on line rentals could be compensated for by profits from other services, or subsidies paid to Telecom under the TSO.

"Pricing below cost to deliberately incur losses in order to eliminate competitors and then raise prices in future can be a breach of the Commerce Act, but this does not appear to be a feature of the behaviour described to the commission."

Venture Southland enterprise manager Steve Canny doesn't believe most people outside the main centres are expecting steep rises.

"I believe rural customers, by and large, don't understand the effect of the decision that has been made, and there will be a significant outcry when it is understood and has an impact.

"The need to change these decisions has to be clearly articulated by the rural community and I believe that voice needs to be heard."

- © Fairfax NZ News