Telecom New Zealand Ltd. is considering its options following the Commerce Commission"s declaration that its T3G network doesn"t meet the criteria for a 3G network, a decision which has left other industry insiders scratching their heads.

The Commission"s recommendation to the Government is that mobile termination rates -- the amount mobile network operators charge other operators to send calls to their networks -- be reduced from 27 cents per minute to 15 cents per minute.

However, the Commission has decided to exclude all 3G (third generation) calls so as to protect future investment in the market.

Telecom already operates a 3G network in New Zealand, its T3G network, which delivers speeds of up to 2M bps (bits per second) to the end user. However, the Commission has ruled that Telecom"s network does not use the 3G layer of its network for voice calls and so they aren"t considered to be 3G.

"The Commission believes that 3G voice calls must be conveyed over a 3G network including a 3G voice air interface and terminate on a 3G voice handset" says the report.

Both Vodafone and TelstraClear told the Commission that voice calls on Telecom"s T3G network should be considered as 3G, but the Commission decided to classify them as 2G.

Telecom"s general manager for government relations, Bruce Parkes, describes the decision as "bizarre and perverse" and points out that the Commission discounts the Telecommunication Act"s definition of 3G.

"We"ve always said the standard for 3G is the ITU standard. That"s what it says in the [Telecommunications] Act; that"s what we"ve stood by all along".

According to the ITU, 3G networks are capable of speeds in excess of 144k bps. Parkes says that should be the end of the story.

"We rolled out our 1xRTT network in 2002 and we"ve had at least that speed since then. In fact, the network Vodafone is rolling out today only now catches up to where we were then, but they are going to be defined as 3G."

Telecom"s cell phone network is based on CDMA 1xRTT standard, which delivers speeds of up to 155k bps. Last year Telecom rolled out an upgrade of the service, EV-DO, which delivers higher speeds for the data component of the service but not for the voice component.

Voice traffic needs far less capacity than data -- Vodafone"s original cell phone network in New Zealand required only 9.6k bps for service.

One telecommunications analyst, who did not wish to be named, describes the decision as "absurd".

"Basically it penalizes Telecom for being efficient in its use of bandwidth," the analyst says.

CallPlus managing director Malcolm Dick says the entire exclusion of 3G is unwarranted and will only make life difficult for any other company trying to sell a service that allows users to call a cell phone number.

"We"ve already said we were going to pass on those savings to customers but now we"re going to have to spend money putting in a system that differentiates between 3G and 2G calls and I honestly don"t know how we"re going to do that."

The Commission"s report agrees that this will be an issue but says it will be a short-term problem.

"These difficulties must be set however against the importance to consumers in the long-term of preserving the incentives of mobile operators in relation to their 3G investments."

The Minister of Communications, David Cunliffe, has said he will accept new statements from interested parties on the Commission"s recommendations, although he wants such submissions to go over "new matters" raised by the recommendation. Cunliffe says he won"t make any public comments on the issue until he has briefed the Cabinet.