Introduction
New Zealand provides a good case study of telecommunications regulatory models, as it has gone through four distinct phases of regulatory settings over a period of 21 years.[1]
A period with no industry specific regulation from 1987 until 2001 was followed by, between 2001 and 2006, a sector specific arbitration model "at very much the light-handed end of the regulatory spectrum, arguably the lightest within the OECD" was adopted, and the creation of the office of Telecommunications Commissioner.
The 2006 Amendments
In 2006, the Commerce Commission was empowered to set the terms and conditions of the supply of regulated services on an industry-wide (rather than bi-lateral) basis. Unbundled local loop was introduced as a regulated service, together with a new unbundled bitstream service. New investigative and inquiry powers were granted, and enforcement options were increased. Operational and Accounting Separation was introduced.
The 2006 reforms, under which the industry operated until July this year, moved New Zealand from the light-handed end of the spectrum of OECD regulation into at least the main-stream, and arguably, with Operational Separation, towards the heavy handed end of the spectrum.
Operational Separation required Telecom's network, wholesale and retail business units to be operated at arms-length, and with the network business unit operation on a stand-alone basis. Discrimination between service providers and Telecom business units, or between service providers, was prohibited.
The Commission was granted market monitoring powers which have enabled it to collect market data and produce annual monitoring reports since 2006. These reports show over the past five years an increase in competition resulting in increased investment, greater choice, lower prices and better quality across the spectrum of telecommunications services in New Zealand.
Local loop unbundling developed very strongly at first, and then at a slower pace as a consequence of the impact of cabinetisation on unbundlers' business plans, but accelerated again about a year ago. One hundred and forty nine exchanges (serving 90% of urban lines), will have been unbundled by the end of November 2011, and close to 10% of DSL broadband-enabled lines have services provided by an unbundled operator. In the OECD broadband penetration rankings, New Zealand has climbed from 22nd to 17th over that period.
In mobile markets they entry of a third network operator in August 2009 has resulted in a fall in retail prices, and an increase in call volumes. Cost based regulation of termination rates came into effect in May 2011.
Into a broadband world: the 2011 Amendments
The Telecommunications (TSO, Broadband, and other Matters) Amendment Act 2011 introduced a fourth model, as part of the Government's Ultrafast Broadband (UFB) and Rural Broadband (RBI) Initiatives.
UFB is designed to accelerate the rollout of ultrafast broadband (100Mbps/50 Mbps) to 75% of New Zealanders over 10 years, to be achieved by a FTTH public/private partnership model with the government providing $1.5 billion of concessionary funding.
RBI targets the remaining 25%, with a $300 million grant to deliver (via fixed wireless or copper) a minimum of 5Mbps to 80% of that group and 1Mbps to the remaining 20%; with 97% of schools receiving 100Mbps over fibre, and the remaining 3% of schools 10 Mbps.[2]
The 2011 Amendments builds on the 2006 model, but replaces operational separation with structural separation, and relies on enforceable undertakings as the primary regulatory instrument for the fibre network.
The most significant feature of the 2011 Amendments is the structural separation of Telecom. Structural separation is the "nuclear option" of telecommunications regulation, and is what many commentators have concluded should have been done as part of the privatisation process 21 years ago. It removes the economic incentives of a vertically integrated entity to discriminate in favour of its downstream business, to the disadvantage of its competitors in those downstream markets. In this respect we are now in the middle of a step change - one the telco world will observe with interest.
The copper regulatory regime remains basically intact for a transitional period of three years, after which the regulated UCLL price will move from de-averaged urban/non-urban prices to a nationally averaged price, and UBA will move from "retail minus" to a cost based price. The three year transitional period is designed to provide a reasonable period for those access seekers who have unbundled Telecom exchanges to obtain a return on their UCLL investments.[3] New naked bitstream services will be subject to the averaged UCLL price from separation day (30 November 2011).
The Operational Separation Undertakings expire on separation day, and new copper and fibre undertakings come into effect. These to a large degree build on the lessons learnt from the operational separation undertakings. The twin pillars of open access, non-discrimination (in relation to third party supply) and equivalence (in relation to self supply) are carried over into the fibre regime.
Current regulatory issues
The regulatory issues facing New Zealand are to a large degree associated with the UFB/RBI Initiatives, and the imminent structural separation of Telecom which will occur on 30 November 2011.
Implementation of UFB and RBI
- Undertakings: - The Commission must monitor and enforce compliance with a number of RBI and UFB open access undertakings (one for each provider - a total of six) plus Chorus's copper undertaking.
- Telecom Structural separation:
- Asset allocation - The Commission participated in the process to allocate assets to the structurally separated companies
- Asset Sharing - Where assets will need to be used by both separated companies, asset sharing arrangements must be put in place. The Commission is required to monitor these arrangements to ensure they cause no market harm.
- Standard Terms Determinations - There are a number of consequential changes to the STDs required by Telecom's de-merger. In addition, the amendment to the Act requires us to prepare an STD for a new regulated service (Unbundled Low Frequency Service) as well as changing the basis of pricing for UCLL (averaging the current urban and non-urban prices) and unbundled bitstream (move from a retail minus price to cost-based one). While these changes in the main do not come into effect until 3 years after separation day, we are required in some cases to have made the STD changes before separation day.
- Information disclosure - We are required to collect information on the 'costs and characteristics' of fibre optic networks (from Chorus and the LFCs) and we may also collect some information on compliance with the undertakings. The Commission is consulting on its proposed information disclosure regime.[4]
Demand Side Study
The UFB and RBI Initiatives deal with the supply side of the fast broadband project. Issues remain about the level of uptake in the consumer market, willingness to pay for faster speeds, and the applications which may lead to consumers requiring faster broadband.
The Commission is conducting a market study under its section 9A powers (which empower the Commission to conduct studies into any matter relating to the telecommunications industry) on the demand for high-speed broadband - in particulars to identify barriers to uptake, and the likely drivers of uptake. The objective is to air these issues in a public forum, and to achieve that we are running a conference, The Future with High-speed Broadband: opportunities for New Zealand[5], on 20 and 21 February 2012 in Auckland.
Mobile
- MTAS Monitoring: - earlier in 2011 the Commission regulated mobile termination rates in an effort to ameliorate the large differences in retail price between 'on-net' and off-net' calling. We are now collecting information monthly to monitor the effect that regulating the wholesale termination rates is having on the retail market.
- National Roaming: - The new entrant in our mobile market has a commercial agreement in place to enable their customers to 'roam' onto another network where they have not built infrastructure. National Roaming is a regulated service but is not currently subject to price regulation. The Commission keeps a close eye on these arrangements, as it can investigate whether national roaming should be subject to price regulation.
Backhaul
The Commission has regulated two forms of backhaul, and performs regular assessments to determine the level of competition present on the regulated routes. Regulation does not apply on links where Telecom faces effective competition.
The Telecommunications Service Obligation (TSO)
The TSO was an obligation imposed on Telecom to provide service in rural areas in return for a payment which was calculated annually by the Commerce Commission and levied on the other providers in proportions also calculated by the Commission.
In the 2011 amendment to the Act the TSO has now been replaced by the telecommunications development levy (TDL),which may be used to pay for (among other things) "non-urban telecommunications infrastructure development". The TDL is being used to finance the Rural Broadband Initiative.
[1] For a more detailed explanation of the various regimes, see Regulation of Telecommunications: The lessons learned over the last 25 years and their application in a broadband world. Dr Ross Patterson, 5 August 2011, Speech to the 22nd Annual Workshop of the Competition Law and Policy Institute of New Zealand http://www.comcom.govt.nz/speeches/
[2] For a more detailed explanation of New Zealand's UFB and RBI initiatives see UFB and RBI New Zealand's initiatives for nationwide broadband deployment. Dr Ross Patterson 7 November 2011, ITU Regulator's Roundtable, http://www.comcom.govt.nz/speeches/.
[3] "I consider that 3 years is a reasonable period for Access Seekers to obtain a return on UCLL investments and is, therefore, an appropriate transitional period." Office of the Minister for Communications and Information Technology, Regulatory issues arising from the Ultra-Fast Broadband Initiative, 13 December 2010 (regulatory issues Cabinet paper), page 11, paragraph 49c
[4] Read more about our Information Disclosure work at http://www.comcom.govt.nz/information-disclosure-2/
[5] Read more about our up-coming conference at http://www.futurebroadband.co.nz
