ISOCNZ - Telecom replies - Written response 30 June 1999

QUESTION 1 - KIWI SHARE |QUESTION 2 - REASONS FOR CHANGE | QUESTION 3 - MIGRATION PROCESS | QUESTION 4 - DEFINITION OF INTERNET CALLS | QUESTION 5 - SERVICE LEVEL | QUESTION 6 - BENEFIT TO INDUSTRY OF 0867 | CONCLUDING COMMENTS

INDUSTRY SERVICES UNIT
Level 4, Midcity Tower, 141 Willis Street
P O Box 550, Wellington
Telephone: (04) 802 9016
Facsimile: (04) 801 7308

30 June 1999

Jim Higgins
Chairperson
Internet Society of New Zealand
Level 1, (e)-Vision Centre
282 Wakefield Street
WELLINGTON

Dear Jim

Thank you for meeting with Telecom on Friday, 25 June.We found the feedback and input very useful and constructive.

We undertook to give written responses to your questions so that they can be posted on your website.

Question 1 - Kiwi Share

1. The Kiwi Share requires Telecom to maintain a "local free calling option" for "ordinary residential telephone service" (emphasis added).In our view it does not oblige Telecom to provide unlimited free data calls to the Internet.When the Share was struck in September 1990,use of telephone lines by residential customers for Internet purposes was not a use which formed part of "ordinary residential service".Telecom has sought extensive legal advice on the Kiwi Share aspects of its 0867 service, which confirms this interpretation.
   
   
2. While Telecom may be entitled to charge for all local calls to the Internet, we have elected not to do this.Rather, we are continuing to offer residential customers a free-to-call option to access the Internet through dialling an 0867 number. Telecom has no plans to introduce a charge for 0867 calls for residential customers.Obviously, it is impossible to predict the future, particularly in an industry where technology and its applications are changing so rapidly. We can only reiterate, it is not Telecom's intention to introduce such a charge.

Question 2 - Reasons for Change

(a/b) Telecom is absolutely committed to continue providing a robust and reliable network with sufficient capacity to meet demands including Internet traffic.This does not mean Telecom is simply going to apply the network management tools and techniques that have served us well in a voice world for over 50 years to what is now a completely different environment.The 0867 service will provide Telecom with an ability to more efficiently manage demand in an environment where traffic is not growing at 4% per year (as is voice currently) but rather 100% per year (as is Internet traffic today).

Telecom on average spends around $700m per annum on capital expenditure, the majority of which goes into expanding and renewing the PSTN.In addition to this, we are investing in the Southern Cross cable to provide ample international capacity and as well are developing higher speed data access products such as ADSL.Telecom's IPNet product, which we sell to ISPs, has also been designed to allow for more efficient carriage of dial-up Internet traffic.

(c) The focus of 0867 is not on interconnect payments.Telecom has put forward what we believe is a very fair proposal for handling the situation where another carrier wishes to have access to 0867 numbers.The proposal we have put to other carriers is:

• We will send calls to the interface between our network and the other carrier's for free;
• We will pass calls from the carrier's network to 0867 numbers in the Telecom network free of charge;
• Carriers can use an 0867 number to offer their own Internet service or Internet services to ISPs connected to their network.

(d) Any support ISOCNZ can provide for the 0867 proposal would be much appreciated.

(e) Internet traffic which is not routed via Telecom's dedicated IP Net presently travels over a PSTN network which was primarily designed for voice traffic. While Internet traffic is increasing hugely, the majority of residential customers still predominantly use this network for such voice traffic. Voice and other data traffic such as fax have very different characteristics from Internet traffic, in which a call is established and frequently held for hours at a time.

111 calls already receive priority in the Telecom network. Telecom cannot risk a situation in which 111 could not be accessed because of the volume of Internet traffic.Telecom would act to limit access for Internet traffic (but not affect existing calls) if it saw the potential for 111 calls to be affected. Such action would be highly unusual and typically the consequence of a network overload or emergency. However the integrity of the 111 service is paramount and Telecom must be prepared to respond to such situations.

Question 3 - Migration Process

(a/b) The points made by ISOCNZ members in our meeting in terms of the amount of time required for ISPs to migrate to the new service were useful feedback and we are currently considering this issue.

1. Telecom has made clear that we will assist ISPs with any legitimate costs that they incur in terms of changing to 0867 numbers.It is clear that each ISP will be different as we have had widely varying estimates of the costs involved.Some ISPs see the issue as being relatively simple and straightforwardwhile others see it as a costly and difficult issue.We are committed to working through with each ISP on a case-by-case basis a fair and reasonable contribution to the costs involved.
   

   Incidentally, Telecom's offer to assist with reasonable costs of any transition applies whether the ISP uses Telecom as an access provider or another carrier.From Telecom's perspective, the network advantages of 0867 are achieved irrespective of whether the 0867 service is provided by Telecom or another carrier.Hence provided we have an 0867 agreement with the carrier in question, an ISP can take an 0867 number from their existing carrier and Telecom will assist with the reasonable costs of the number change process.

2. Telecom treats Xtra no differently than other ISP customers.

Question 4 - Definition of Internet Calls

1. Telecom's focus is to improve its network management abilities in respect of long held data calls.The overwhelming majority of these calls are for dial-up calls to the Internet or for IP based games services.Our focus, therefore, is on ISPs offering commercial services to the public in respect of dial-up Internet access and IP based games and services.This does not, therefore, include operations such as non-commercial games services (e.g. a group of private individuals who may operate their own Quake server).It is our desire, where possible, to publish a list of organisations that we consider to be offering commercial Internet access and IP based games services in order that customers will have as much knowledge as to when and when not they will be charged.If in the future we identify an organisation which we consider to be offering such services, then this will be discussed with that organisation and appropriate notice would be given.
2. Answered in 3(b)

(c/d At this point in time, our focus is on commercial ISPs and games services.This captures the vast majority of long held data calls.

1. Provided an 0867 number is available, any customer wishing to offer a data service using an 0867 number will have access to any number they require.Telecom has set aside numbers where these involve ISP trademarks.
2. We have offered customers up to ten 0867 numbers at no charge and a $35 per month charge for additional numbers.This charge is in place entirely to avoid hoarding of numbers as has occurred with Internet domain names and 0800 numbers.Where a customer has a reasonable requirement for more than ten numbers and it is clear that this is not motivated by hoarding, then it is likely that Telecom would consider waiving this charge.

Question 5 - Service Level

I believe there is a misperception that with 0867 Telecom is going to provide a significantly degraded service for Internet calls.In fact Telecom believes we can with 0867 provide a better level of service in the long term overall for both voice and Internet users.If Telecom continues with the status quo, i.e. endeavouring to manage phenomenal data growth over a network designed for short duration voice calls with single digit growth rates and with management tools designed for such an environment then it is likely that it will become harder and harder for Telecom to maintain the highly reliable network we have today.

For 50 years or more the PSTN has been growing steadily but with the basic patterns of network traffic remaining the same, i.e. average call length remains very stable as does the times of peak and off peak demand.The ability to manage the network in such a stable environment is relatively simple.To date, Telcos all across the world have been managing their networks essentially by looking at the past and extrapolating this into the future.This is a little like trying to drive a car by looking only in the rear vision mirror.This works only if the past is a good indicator of the future.This is no longer the case with Internet traffic now at over 30% of all local call traffic and with volumes doubling every 12 months.

0867 will for the first time give Telecom detailed information of Internet traffic flows over its network and will hugely improve our ability to forecast and plan our investment in a way which will benefit all users.Network investment needs to be planned in advance and cannot be rolled out overnight.0867 will significantly reduce the risk of sudden changes in network usage leading to network capacity problems.While Telecom reserves the right to use 0867 to prioritise traffic where overloading is occurring, this is not expected to occur on a day-to-day basis and we believe will be more than offset by the overall improvements to network management which will benefit all users.

1. 0867 will not change the current situation.If an Internet customer cannot get through today because their ISP has no available ports then the customer currently receives a busy tone.If the customer cannot get through because the network is overloaded, then they receive the Network Unavailable Tone.The same applies with 0867 so customers will be aware if the problem is a Telecom or an ISP one.
2. Telecom certainly acknowledges that, as the Internet becomes more and more a core part of peoples' lives, the relative value of voice calls and Internet calls will change.At the moment, around one third of residential access lines are used in part for accessing Internet.The vast majority of those customers who use the Internet still use more than half their minutes making voice calls rather than Internet calls.There are, however, a growing number of customers who are more data than voice users. 0867 will help Telecom manage such traffic through its network for these customers
3. IPNet offers a number of network management advantages to Telecom.However where 0867 and IPNet calls (including Telecom Xtra calls) have an equal effect on any part of the network then they will be treated the same.Telecom is very stringent on treating Xtra in the same way as it treats all ISPs.
4. Telecom offers Service Level Agreements to ISPs for certain services.These can be negotiated on a case-by-case basis.
5. As set out in Question 1, Telecom has a strong commitment in continuing to provide a high quality reliable network appropriate to all users including voice and Internet users.
6. On balance, Telecom believes that we should be able to provide a better service overall for all customers by using the significantly improved network management tools that 0867 gives us.As set out above, the focus on 0867 is to manage the network primarily to help avoid occasions where the network could come under real stress. The 111 reference was simply an example of a situation which Telecom cannot risk and so is moving to manage actively.

Question 6 - Benefit to Industry of 0867

We believe 0867 benefits the end customer, network operators and ISPs. The functionality provided by our intelligent network offers a huge range of new services we can offer to ISPs.While Telecom had thought of some service improvements we are able to offer, e.g. stepping, our discussions with ISPs have already uncovered a host of service opportunities.One example is time of day diversions for an ISP's traffic, e.g. after 6.00 pm at night diverting traffic away from overloaded residential ports of an ISP to their under-utilised business capacity.

In terms of ISPs being able to take their numbers with them between carriers, this opportunity will be one of the matters addressed in contracts that we wish to sign with other carriers which will ensure that this significant benefit is retained.

Concluding Comments

Thank you again for the chance to meet with ISOCNZ.Your feedback was very helpful.I trust our answers to your comprehensive range of questions are helpful.We realise that our new 0867 service offers both a range of challenges and benefits to the industry.Telecom's overwhelming concern is to put in place a robust network to cope with the explosion of internet traffic and an appropriate means for customers to access the Internet over the Telecom network while at the same time ensuring a reasonable transition.We are committed to working with ISPs who wish to take up the service and hope that ISOCNZ will support our initiative.

Yours sincerely

Bruce Parkes
Manager, Industry Services Unit

©1999 The Internet Society of New Zealand
Last updated 30 June 1999