Telecom 'subsidy' hits rivals

, posted: 8-Jun-2004 23:26

Hopes for rural broadband competition have been dealt another blow with Telecom revealing it is using its Project Probe funding from the Government to slash the price of its wireless broadband services.

The result is, in effect, a subsidy. It spells cheaper connections and lower monthly internet charges for consumers - an intended side-effect of the Government's scheme to get high-speed internet to rural schools - but it effectively strangles broadband competition beyond the main centres.

The move has Telecom rivals ihug and Iconz re-evaluating their rural broadband offerings, and ihug is looking to ditch it completely. It is understood that Telecom is receiving a few million dollars per Probe region from the Government.

Woosh Wireless' Project Probe aspirations have collapsed and it withdrew last week from three of the four regions it had won Government money to service. Telecom has claimed Canterbury, Wairarapa and Northland and the funding that goes with them. It now has 11 of the 15 Probe tenders and can spread the subsidy effect nationwide.

Telecom spokeswoman Helen Isbister confirmed that the Probe grant had enabled it to reduce the cost of the Wireless 1000 and 2000 services provided by its internet provider arm, Xtra. Thanks to the Probe grants, Telecom can halve the $1475 installation charge and can provide the Xtra Wireless 1000 and 2000 plans at $60 and $70 per month respectively.

Other providers selling the service are charging about $105 and $115 per month. Telecom is also flagging its $475 installation fee in a deal running until the end of the month. Telecom and its competitors wholesale the same service from government-owned broadcasting and telecoms operator Broadcast Communications, which reaches rural communities with its network of transmission towers. BCL gives them all the same wholesale rate.

The Herald understands that rate is $55 plus GST per month and per customer, which would bring the customer cost for the cheapest plan to $62 dollars a month for the provider.

A spokesman for a regional internet provider, who did not want to be named, said his company had started setting up a service with BCL but could not compete with Telecom's heavily subsidised pricing. His two entry-level services used equipment from wireless vendor Airspan. The entry-level deals run at 256Kbps
downstream, and 128Kbps upstream, which is equivalent to Telecom's Jetstream Surf ADSL plans.

Isbister said the two entry-level wireless services were available for residential and business customers, but added that the Probe grant did not apply to the faster Wireless Plus plans.

Although BCL announced with much fanfare the support of internet providers ihug and Iconz as an endorsement of its wholesale model, ihug is no longer actively pitching the wireless services to customers.
Ihug's general manager of networks, David Diprose, said the decision to award Telecom the Probe subsidies was "against the goals of the project".

Diprose said a wholesaler should have been given the Probe subsidies instead. This happened in the Auckland region where Counties Power network subsidiary Wired Country is deploying a wireless service on a wholesale basis to internet provider partners.

Asked if ihug would continue deploying the BCL wireless service, Diprose said that there was "no point in trying to compete [against Xtra] on these terms". Diprose said that ihug would no longer actively market BCL, as the provider did not "consider it a viable commercial opportunity".

Instead, Ihug will work with Wired Country, as it sees that as the greatest chance of providing a price-competitive service to customers.

Iconz is providing wireless services through BCL in some of the regions awarded to Telecom. General manager Sean Weekes said he was "not happy per se" with Telecom's aggressive price-cutting, but that Iconz would still offer the service. Iconz, however, would not be matching Telecom's price cuts.

Weekes added that he was been on record as saying that BCL's choice of technology was too expensive for consumers. Like ihug, Iconz's focus was on providing Wired Country wireless service, which Weekes said had "seen a strong  uptake in Auckland".

The Probe debacle: Telecom claims all

* Telecom is using millions of dollars in Government grants to undercut competitors in rural areas.
* Woosh's withdrawal from three Probe regions - Wairarapa, Canterbury and Northland - means Telecom instead receives grants for those areas and can extend its subsidies to more of the country.
* Telecom's rivals cannot afford to match the price cuts, with ihug ditching the wireless service.

Other related posts:
The problem with VDSL2, part 2
The problem with VDSL2
The mysterious Dynamic Line Management on VDSL2

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