Telecommunications: Summary Of Government Decisions
MEASURES TO PROMOTE THE GOVERNMENT’S ECONOMIC OBJECTIVES
Regulatory institutions
New Telecommunications Commissioner
 A Telecommunications Commissioner will be appointed as a specialist Commissioner within the Commerce Commission. The Commission will be adequately resourced, including with specialist staff, and have sufficient information gathering powers to undertake the new telecommunications-specific regulatory functions.
Functions of the Commissioner
 The Commissioner will carry out the following key functions:
- dispute resolution (‘determination’) concerning compliance with access obligations for designated or specified services;

- making recommendations to the Minister of Communications on further designations or specifications; and

- monitoring and enforcement of the Kiwi Share obligations.

Determination of disputes
 The Commissioner invites submissions from parties and exercises powers to obtain further information as required.
 In relation to a designated service where the price is in dispute, the Commissioner will apply “initial pricing principles” in order to make a determination on price quickly. This initial determination will be binding and not subject to appeal to the High Court.
 A party could then seek a “pricing review determination”, at which point the Commissioner would have to apply the “pricing review principles” (involving more complex methodologies).
 A determination (including a pricing review determination) will be binding and enforceable, but appeal allowed in the circumstances described below. It will continue to be binding while the appeal is being heard, meaning the parties could not use the appeal process to delay a determination. Parties could also request the Commissioner to reconsider a determination later if circumstances changed.
 The parties are responsible for enforcing a determination through the courts.
 Determinations of the Telecommunications Commissioner will be made publicly available.
Rights of appeal
 Rights of appeal against determinations of the Telecommunications Commissioner will be limited to points of law, to co-exist with a right to judicial review.
Involvement of other Commissioners in decision making
 Full determination pricing reviews will be made jointly by three Commissioners, including the Telecommunications Commissioner.
 For recommending new services for designation or specification, the Telecommunications Commissioner will be required to consult with two other Commissioners.
 Other duties will be carried out by the Commissioner, or with two other Commissioners at the discretion of the Telecommunications Commissioner.
Industry Forum
 The Minister of Communications will invite industry participants to set up a Forum.
 Reference will be made in legislation to a voluntary industry forum but establishment and membership of the forum will not be made mandatory.
 The Telecommunications Commissioner will have a power to approve codes (including those prepared by the Industry Forum) that are binding on the industry but can be amended.
Funding the costs of the Commissioner
 The general costs of the Commerce Commission (including the Telecommunications Commissioner) incurred in carrying out its telecommunications-specific regulatory functions will be met through a levy imposed on the telecommunications industry.
 The costs of any determination proceedings will be met by the parties to those proceedings in proportions decided by the Commission.
 The level of funding required and the precise funding mechanism are to be determined early next year.
Form of regulation
New categories of regulation for telecommunications
 Three new categories of regulation will apply to the telecommunications sector:
- designation: a provider of a designated service must provide that service on request from an access seeker in accordance with prescribed access obligations, including pricing principles (which will enable the new Telecommunications Commissioner to set a regulated price in the event one party brings a dispute over the price);

- deferred designation: an alternative to immediate designation; that is, the service will be designated if the industry fails to agree access terms and conditions by a set date; and

- specification: an obligation to make the service available, but which does not include the pricing principles to be used in providing access.

 All designations and any specifications will expire automatically after five years, unless revoked earlier, but can be renewed for further periods of two years by the Minister.
Process for regulating additional services
Designation/specification process
 A process will be established for designation or specification of additional services in the future, should the need arise. This process may be initiated by either the Minister of Communications or the Telecommunications Commissioner.
 Once the process has been initiated, the Commissioner, in consultation with two other Commissioners, will apply the designation/specification test and report to the Minister on whether regulating the service in question would meet this test, and if so, which form of regulation would be appropriate. The Minister will then have the final decision on whether to regulate the service (by Order in Council).
Designation/specification test
 The following test will be applied to determine whether a service should be designated:
The objective of designation or specification is to promote the long-term interests of end users of telecommunications services, resulting in net economic benefits to New Zealand, having regard to the extent to which designation or specification would:
 facilitate efficient competition in markets for telecommunications services; and
 promote any-to-any connectivity to the extent that it is efficient; and
 encourage the efficient use of, and efficient investment in, the infrastructure by which telecommunications services are provided.
Regulated services
Designated services (from the commencement of new legislation)
Interconnection with Telecom’s fixed telephone access network
 Interconnection is the connection of two networks, thereby allowing customers on one network to connect with customers on the other network, or to access services provided by the other network.
 Voice and data interconnection (call origination and termination) on Telecom’s fixed telephone service network will be designated with the Commissioner also able to set the price of interconnection on the other network (excluding cellular networks) in the event of a dispute.
 The pricing principles to apply are:
- The cost-based pricing principle for interconnection with Telecom’s network will be total service long run incremental cost (TSLRIC);

- the price for interconnection with the other network will be the price of interconnection with Telecom's network corresponding most closely to the nature of the other network (e.g. urban, rural); or a TSLRIC model; or bill and keep (where no payments are exchanged), if appropriate.

 Where TSLRIC interconnection prices are required, each network will undertake its own modelling to estimate the price for interconnection with its network, with the Telecommunications Commissioner having the power to set the price.
 Legislation/regulations will specify that a key purpose of allowing the Telecommunications Commissioner to set the price of interconnection for data traffic to the non-Telecom network is to eliminate perverse incentives to stimulate artificially Internet traffic.
Wholesale access to Telecom’s fixed network at ‘retail minus’ prices
 Wholesaling is the sale of telecommunications services at a discounted or wholesale price to other telecommunication services suppliers who then resell them to customers.
 Wholesaling of Telecom’s fixed network services will be designated to enable access seekers to purchase any service or service bundle retailed by Telecom.
 The designation will apply only to non-price capped services, and will not require Telecom to unbundle a service offering where the unbundled elements are not offered as a retail product.
 Pricing for these services will be on a ‘retail minus wholesale discount’ basis (reflecting net costs saved), and the Commissioner will use economic efficiency criteria to determine:
- the most appropriate retail price on which to base the discount (e.g. average price or best price for the service); and

- the areas to which the designation should apply (e.g. areas of market power only or all areas).

Number portability
 Number portability is the ability of customers to keep their telephone number when they change service provider. The main objective is to reduce the costs of users switching to alternative suppliers.
 Number portability (including 0800 number portability) will be designated. The Telecommunications Commissioner will be required to use economic efficiency as the criterion for making any determination on:
- the most appropriate number portability system; and

- how the implementation and use of this system would be funded.

Deferred designation
Fixed-to-mobile carrier pre-selection on Telecom’s fixed network
 Carrier pre-selection or ‘non-code access’ enables network users to choose different providers for any long-distance segment of their calls, without having to enter an additional number code.
 Designation of fixed-to-mobile carrier pre-selection from Telecom’s network will be deferred on the following terms:
- industry will be given until 31 December 2001 to agree on appropriate terms and conditions for carrier pre-selection;

- if agreement has not been reached by this time, the Minister of Communications will have the power to designate fixed-to-mobile carrier pre-selection on Telecom’s fixed network immediately.

Specified services
 Although it will be possible to specify services in the future, no services are being specified initially.
Services not being regulated
 The following services discussed by the Inquiry are not being regulated at present:
- local loop unbundling (LLU): LLU involves competitors ‘renting’ Telecom’s copper wire from the local switch to the customer premises, instead of installing their own wires (as Telstra Saturn has done in the Wellington region). LLU would provide an entrant with the right to put its own line conditioning equipment on the local loop access circuit, e.g. xDSL.

- data tails: a service that provides (an access seeker) the ability to transmit data to a customer by accessing the Telecom (access provider) data network at any point that is technically feasible (other than at the physical level, i.e. the copper circuit)

- call origination and termination (interconnection) between all networks;

- wholesaling of 2½G mobile services;

- roaming between compatible mobile networks: Mobile roaming allows subscribers of one mobile operator (the home network) to make calls on another operator’s network (the host network) when outside the coverage area of their own provider’s network;

- co-location at mobile transmission sites: co-location is the use by a service provider of an existing cell site owned by another service provider for the purpose of locating mobile transmitter/receiver equipment; and

- Sky Television’s digital television conditional access systems: conditional access systems are used to protect the intellectual property content of transmissions and are typically implemented through set top boxes.

MEASURES TO PROMOTE THE GOVERNMENT’S SOCIAL OBJECTIVES
Kiwi Share
Enhancements to the Kiwi Share
 The following improvements to the Kiwi Share have been decided upon as being necessary to meet the Government’s social objective:
- extend geographical coverage of the Kiwi Share to current levels;

- clarify that the Kiwi Share obligations provide for free local calls for dial up data (e.g. Internet) as well as voice;

- achieve an improvement in Telecom’s network capability for dial up data to at least 9.6kbps within two years of the passage of legislation for 99% of all existing residential lines, and to 14.4kbps over a period of two years for 95% of all existing residential lines. Capital costs are to be met by Telecom;

- implement a strengthened monitoring and enforcement regime:

(a) measures for assessing Telecom’s performance in fulfilling its Kiwi Share obligations will be incorporated into the legal instrument that will give effect to the revised Kiwi Share obligations, including:

(1) Internet access availability (99% at 9.6kbps; 95% at 14.4kbps);
(2) 111 performance; and
(3) dial tone availability – a measure of voice service quality.

(b) a penalties regime will apply if Telecom fails to fulfil its Kiwi Share obligations. The Commissioner will be able to withhold approval for Telecom to oncharge industry participants their share of the costs of the Kiwi Share obligations if Telecom has not achieved satisfactory performance.

Price cap
Consistent with the Inquiry’s recommendations:

 The current CPI price cap on residential telephone service will be retained.
 Telecom will continue to be able to reduce its prices in the face of competition (subject to the Commerce Act).
Net costs of the Kiwi Share obligations
 Telecom will carry out an initial costing of the Kiwi Share obligations in accordance with a robust and transparent costing methodology (including auditing and consultation with interested parties). The Telecommunications Commissioner will make a final determination on the level of any net operating costs.
Industry contribution to any net costs
 Telecom and other firms connected to Telecom’s fixed network will contribute to any net operating costs of the Kiwi Share obligations.
 The level of each industry member’s contribution will be determined by the Telecommunications Commissioner in accordance with an appropriate methodology, based on a share of relevant telecommunications revenue streams including mobile, long distance, data and local access. Approved shares will be recoverable by Telecom as a debt from other companies.
Information Society Initiative
Purpose of Initiative
 An information society initiative will be established to facilitate a partnership between government, industry and local communities in relation to measures that will promote the information economy in New Zealand. This includes by considering issues relating to access to bandwidth in New Zealand.
 Details of the initiative will be worked through early next year, including the appropriate structure for the initiative.
Universal service obligation for higher speed data
 The Government will assess the case for a higher speed universal service obligation in 18 months’ time. Issues to be examined include the level of uptake of high speed data services, the desirability of competitive tendering for the Kiwi Share and any higher speed capability, and any implications for the Kiwi Share.
 Provision will be included in legislation to allow the mechanism used to obtain contributions from industry for funding the Kiwi Share obligations to also be used to fund any future extension (including through competitive tendering) to universal service provision should any extension be decided on by the Government.
Electric fence interference
 Many rural users face problems with their Internet access due to interference from electric fences. The Ministry of Economic Development and Ministry of Agriculture and Forestry will work with key stakeholders to determine the role of Government in facilitating solutions to telecommunications problems in rural areas caused by electric fence interference.
 Reducing the impact of electric fence interference could have a significant effect in improving rural Internet access.
Further work on access for people with disabilities
 The Ministry of Economic Development and Ministry of Health will undertake further work on the implications of access to telecommunications services for people with disabilities in New Zealand.
OTHER ISSUES
Radio spectrum policy
 Competition issues for spectrum rights will continue to be addressed by the Commerce Act and by way of Government policy decisions at the time that spectrum rights are allocated.
Information disclosure requirements
 Existing telecommunications information disclosure requirements will be revoked from the date at which the new regulatory regime becomes effective. Telecom will not be required to complete the 1999/2000 financial statement disclosures in relation to its local loop business.
Interception capability
 There is a proposal to require public telecommunications networks to be interception-capable in order to achieve effective law enforcement and security purposes.
 The Associate Minister of Justice will report to Cabinet as soon as possible next year on this issue, including legislative requirements.

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