Hon Paul Swain
20 December 2000 Speech Notes

A world leading regulatory reform

The government is announcing today what we consider to be "world leading" regulatory reform in telecommunications.

It has been over a decade since Telecom was privatised. During that time there has been new investment and improved competition in the industry - although most people recognise that this could have been accelerated if our regulatory regime was more robust.

During that time claim, counter-claim, argument and litigation have beset the industry. The previous National government threatened to take action, but never did. It found the issue all too hard.

Today the government is taking action.

This response is forward looking. It concentrates on tomorrow's solutions rather than yesterday's problems.

I want to reinforce the point that in a highly competitive market like this one we need as much market as possible, as much government as necessary.

This is about establishing a sound platform for the new economy.

It is designed to promote investment and competition in such a way that people decide to invest in telecommunications in New Zealand, not because of regulation, but because of a return on capital.

This is not about being heavy or light-handed. These are, in my view, outmoded concepts. It is about being even handed. It sets rules and applies them evenly. It is a fine balance between commercial imperative in the first instance, and government intervention when the need arises.

The new regime is designed to bring greater certainty, investment, competition, opportunity and consumer benefit.

I want to thank the Telecommunications Inquiry Panel headed by Hugh Fletcher, for giving us such a good base to work from. While we haven't followed all their recommendations we have used it as a foundation.

This response is also another excellent example of how a successful coalition government works and is working. I want to particularly acknowledge my colleague Hon Laila Harre Associate Minister of Commerce for her contribution to this response.

Now the content:

Regulatory Institutions
Telecommunications Commissioner
A Telecommunications Commissioner will be appointed as a specialist Commissioner within the Commerce Commission. The new Commissioner will be funded by industry and will have specialist staff.

The Commissioner's key functions will be:
- To resolve disputes over regulated services.
- To report to the Minister of Communications on the desirability of regulating additional services.
- To monitor and enforce Kiwi Share obligations.

The Commissioner can be part or full-time depending on the workload. In the case of a dispute the Commissioner will have the authority to make an enforceable determination.

This deals with the major problem in the telecommunications industry at the moment of carriers being able to drag disputes through lengthy court processes.

There will be appeal rights from a final pricing review but those will be restricted to points of law and current decisions will apply in the meantime. There will of course always be the ability for judicial view.

We have decided on a Telecommunications Commissioner, rather than an Electronic Communications Commissioner, because the focus of the government's new regime is somewhat narrower than that of the inquiry's.

Industry Forum
We have decided that an Industry Forum will not be mandatory but we expect one to be established. The Commissioner can approve codes of practice for the Forum.

Regulation vs commercial negotiation
A regulated price will only be set if there is a dispute over the price that the parties cannot resolve themselves. The Commissioner does not have the power to overturn commercially negotiated agreements.

The government would prefer firms to reach their own agreements on a commercial basis. Regulation will only be used as a backstop if commercial solutions cannot be found.

Forms of Regulation
The inquiry recommended a hierarchy of regulatory tools to ensure no more regulation is adopted than is needed:
1. Designation - where a provider of a designated service must provide that service on request from an access seeker in accordance with access obligations, including pricing principles;
2. Deferred designation – this is 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;
3. Specification – an obligation to make the service available, but which does not include the pricing principles to be used in providing access; it effectively puts the industry on notice that this is an issue that needs to be resolved.

We have adopted those recommendations.

Designated Services.
Those services that will be designated are as follows:
- Interconnection with Telecom’s fixed telephone network. The options available for the Commissioner will be either forward looking cost based (TSLRIC) or bill and keep. This will ensure that efficient interconnection prices are charged and will also solve the 0867 problem that has been the subject of argument over recent times.
- Wholesaling Telecom’s fixed network services - retail price minus costs saved
- Number portability, including 0800 number portability

Deferred Designation
- Fixed to mobile carrier pre-selection from Telecom’s network with a deadline of 31 December 2001.

Specification
The government has taken a narrower focus on these issues than the inquiry and decided that although specification of services will be an option, none of the services the inquiry recommended will be specified at this time.

Process for regulating new services
The process for regulating any new services is as follows:
- The process can be initiated either by the Minister or the Telecommunications Commissioner.
- The Telecommunications Commissioner undertakes a study and after consultation with two other Commerce Commissioners reports back to the Minister.
- If the Minister agrees the Minister is then able to designate by an Order in Council.

Universal service obligations for higher speed data
We agree with the inquiry that at this stage there is no immediate need for a universal service obligation for higher speed data. But we will look at the issue again in 18 month’s time.

Kiwi Share Obligation
The Kiwi Share Obligation is essentially a contractual arrangement between Telecom and the Crown which was established when Telecom was privatised in 1990. Today we are announcing enhancements to the Kiwi Share. We believe these improvements are necessary to meet the government's social objectives – consumers should benefit as a result.

The upgraded Kiwi Share requirements:
- Extends geographic coverage to current levels.
- Clarifies that free local calls include dial up data (e.g. Internet) calls.
- Bringing basic Internet access to virtually all New Zealanders by upgrading Telecom’s network to provide 9.6kbps data capability to 99% and 14.4kbps to 95% of residential lines over two years from the passage of legislation. (Telecom is to bear the capital cost of this upgrade – the industry is to contribute to any ongoing KSO losses)
- Improved funding mechanism – industry is to continue to contribute to any Kiwi Share losses through a more transparent and competitively neutral mechanism.

There will be a tighter monitoring regime on Telecom's performance, including 111 performance, dial-tone availability and infrastructure upgrade as mentioned earlier.

If Telecom were to fall below agreed standards, the Commissioner has the ability to withhold industry contributions to Telecom's Kiwi Share Obligation losses.

The government welcomes the commitment from Telecom to this agreement. It represents about a one hundred million-dollar upgrade to its network. As a result more people will be able to obtain basic Internet access.

At this stage the Government does not see any need to legislate the Kiwi Share. Telecom has indicated to us its willingness to enter into a revised arrangement along the lines described. We expect an exchange of letters to take place later this week with a new arrangement finalised at the time of the passage of legislation.

One of the issues that has come to light is the importance of rural New Zealand being able to participate in the new economy and the urgency with which we must address that. This announcement goes a long way toward taking the matter forward.

Information Society Initiative
It is accepted that the costs of providing higher bandwidth than that announced today to all New Zealanders is an issue that New Zealand as a whole has to address.

An Information Society Initiative, recommended by the inquiry, will be established to facilitate a partnership between government, industry and local communities. The key objective of this is to promote the information economy in New Zealand.

This initiative will promote programmes relating to the information economy and consider as a priority the issue of access to bandwidth in New Zealand.

Details of the initiative will be announced early next year.

Summary
As I said earlier, the package of reforms outlined today is, we consider, world leading as far as telecommunications is concerned. I intend to introduce legislation to implement these decisions early next year for passage around the middle of next year.

Thank you for your attention.

ENDS

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