Congratulations to the government for having a decent crack at reforming the “Telecommunications Service Obligation” or TSO. This obligation (primarily to protect residential users by maintaining unpriced local call options and cap line rental increases at the rate of CPI inflation) was a liability accepted by the people that bought Telecom from the government 20 years ago. Its cost would have been factored into the price.
In the lead-up to the 2001 Telecommunications Act which was the first regulation of the industry since privatisation, it was decided to share the “net cost” of the obligation between all telcos. And ever since then, we’ve been fighting over the details of what “net cost” means, how other technologies (notably mobile) affect it, where these loss making customers actually live, etc etc.
The MED discussion document canvasses several relevant issues. A particularly interesting one is how to estimate the net cost. This is referred to very obliquely by the Herald but Stuff has understood it correctly. Here is how it works.
The (stylised) red line shows the cost an efficient telco would incur to provide each fixed line connection. For many urban customers its quite low because of economies of density. Out in the sticks it starts to climb rapidly. Everyone pays the same line rental, so Telecom makes a decent profit on many customers (area A) and a loss on some customers (area B).
Up until now, the net cost has been defined as B, based on the view that the profits on cheap connections (A) would be competed away. The new proposal is that it be defined as A – B, so there would only be a loss if there was a nationwide loss, which is pretty unlikely.
