Commerce Commission to investigate Telecommunications initial pricing principle

The Commerce Commission has started an investigation into the initial pricing principle of the Telecommunications Act 2001 for wholesale service bundles supplied by Telecom to other telecommunications providers, following a request from Communications Minister Paul Swain.

The Telecommunications Act 2001 made comprehensive changes to the regulatory regime for the telecommunications sector in New Zealand. The legislation is complex in nature, comprising 161 sections and 4 schedules.

An error has been identified in the initial pricing principle for the designated service: “bundle of retail services offered by means of Telecom’s fixed telecommunications network”, detailed in Schedule 1 to the Act.

As the Act stands, under the initial pricing principle for a wholesale service bundle which includes any price-capped residential telephone service, there would be double discounting - once with a discount based on international benchmarking and again with a further 2% discount.

“The initial pricing principle for wholesale service bundles in the Telecommunications Act does not accurately reflect what the Government intended,” said Mr Swain.

“The intent of the Government’s wholesaling policy was for the price-capped residential access included in a wholesale service bundle to be discounted at a single rate of 2%. The remaining services in the bundle were to be discounted by benchmarking against discounts applied to comparable bundles that do not include price-capped residential access and calling in comparable countries.

“The existence of an error is apparent from the inconsistency of the initial pricing principle for wholesale service bundles with the initial pricing principles for other designated wholesale services applying to price-capped residential access service.

“Mistakes should not happen but on occasion they do. Unfortunately this one slipped through the review process. However, with a piece of complex and extensive legislation like the Telecommunications Act you cannot guarantee there will be no issues to resolve,” said Mr Swain. “I am obliged to take appropriate steps to ensure an error in the Telecommunications Act brought to my attention is addressed. The investigation procedure for altering regulated services that I have triggered is the appropriate course of action. Under the process the Telecommunications Commissioner considers whether any change is required to meet the purpose of the Act.

“I formally requested the Telecommunications Commissioner on 30 January 2003 to commence an investigation to determine whether the initial pricing principle should be amended. The Telecommunications Commissioner advised me on 14 February 2003 that the Commerce Commission was satisfied that there are grounds for an investigation, and that the Commission would commence an investigation (of the initial pricing principle) pursuant to clause 2 of Schedule 3 of the Telecommunications Act.

“I look forward to receiving the Commerce Commission’s recommendations on this issue,” said Mr Swain.

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