28 June 2006

Speech Notes Hon David Cunliffe

Vision 2011 – Roadmap to the Top

7th Annual Telecommunications & ICT Summit Hyatt Regency, Auckland

Introduction

Ladies and gentlemen, we are in a new era of telecommunications in New Zealand.

The Government has announced the unbundling of the local loop as part of a package of intitatives to boost broadband consumption in New Zealand.

I anticipate a dynamic, competitive telecommunications environment to evolve over the next 2 – 3 years.

The need for regulation was underpinned by both our economic transformation agenda; and demands from the industry wanting access to the telecommunications market on non-discriminatory terms.

The market has already begun to respond decisively to the new era.

But the major catalyst for change came from New Zealanders. Ordinary Kiwis hungry for faster, cheaper broadband and the benefits it delivers.

Most of you will be aware of the recent history of the broadband situation.

You will be aware that New Zealand has been languishing at the bottom end of the OECD for broadband take up.

You will be aware that New Zealanders have been paying far too much for far too little, in terms of broadband, for far too long.

You will be aware that market players have faced real barriers to providing quality services to consumers at reasonable prices.

Indeed, the statistics painted an unacceptably dim picture of the status quo.

However, in light of recent policy, legislative and market developments, we have several reasons to be optimistic about our digital future.

That is not to say we can relax. We still have quite a journey ahead.

So today, I would like to talk about why and how we decided to pursue these reforms, and to expand on the implementation of the process from here.

In doing so I will emphasis that the proposed stocktake reforms:

· are a comprehensive, balanced package that will make a positive difference for New Zealand users and businesses;

· are based on a thorough and well-founded research process informed by a range of international and specialist inputs;

· will be implemented as rapidly as practicable via parallel legislative, policy and market processes.

The Stocktake Package

The 'Speech from the Throne' in November 2005 set out a broad goal of ensuring that New Zealand enjoyed a competitive, world-class telecommunications environment.

The Prime Minister also signalled our increasing concern with New Zealand's broadband performance, in her opening address to Parliament in February 2006.

Thus, we undertook a thorough stocktake of the telecommunications environment.
The purpose of the stocktake was to consider developments in the telecommunications sector as a whole over the last 3-5 years and to look forward, taking a medium term view.

The primary focus was placed on the broadband market and broadband performance as a factor in economic performance.

The stocktake review considered a range of reasons for New Zealand's poor performance. In summary, the main findings of the stocktake were:
· New Zealand is in the bottom one-third of OECD countries across a range of telecommunications services pricing and broadband take-up indicators.

· The evidence suggests that we are approximately 3 years behind the pack.

· A factor in our poor broadband performance is the lack of effective competition in key market areas.

· Current policy settings were inadequate to close the performance gap.

· Broadband is critically linked to economic growth. Looking at the top countries in the OECD for broadband, it was clear that there was a strong link between faster, cheaper broadband and competitive, properly regulated markets.

Studies showed that broadband and in particular, advanced ICT services are a critical enabler of innovation, productivity, GDP, growth and therefore are central to achieving the government's key goal of economic transformation.

Most of you will already be aware of the four key components of the proposed package. The full cabinet paper is available on the beehive website.

To recap briefly the package entails:

1. Facilitating competition by improving access at the wholesale level to the fixed local-loop telecommunications network, through: · Introducing local loop unbundling;

· Removing constraints on the regulated Unbundled Bitstream Service, including providing for "Naked DSL";

· Empowering the Telecommunications Commissioner to implement accounting separation. 2. Encouraging investment in alternative infrastructure (such as fibre, wireless and satellite networks), including by:

· Reviewing public sector investment in telecommunications infrastructure;

· Reviewing whether Telecom's ability to reduce local prices solely in response to new competing infrastructure investment should be constrained;

· Developing a rural package in the 2007/08 Budget round;

· Ensuring competitive access to spectrum for new wireless applications.

3. Future-proofing the regulatory environment to technology change and market dynamics, including by: · Empowering the Telecommunications Commissioner to undertake strategic reviews of sector performance; · Reviewing the Telecommunications Service Obligations (TSO), · Undertaking further analysis of the costs and benefits of structural and operational separation options.

4. Continuing the development and implementation of the Digital Strategy and encouraging the smart use of information and communications technology (ICT), particularly amongst under served communities

In summary, the stocktake package of reforms is both comprehensive and balanced. Balanced between facilitating a regulatory 'catch up' and ensuring that we 'keep up' by future-proofing the regulatory process. That balanced between the need to promote more vigorous competition on the local loop, while accelerating competition between alternative broadband delivery modes. The Stocktake Process

My second key message today is that this package is based on a very thorough process of research and analysis.

It considered a full range of options and weighed up the most effective combinations of measures to achieve our policy goals.

The stocktake combined extensive information gathering, the development of multiple policy options, scenario development and hypothesis testing against international best practice.

Officials were assisted by specialist expertise from a number of consultants and a range of international resources, including experts from the OECD and EU. Emerging hypotheses were peer reviewed by leading international expert, Professor Martin Cave.

My officials and I either met or received submissions from virtually all of the key stakeholders in the industry, and relevant interest groups. We were provided with a wide range if written submissions, most of which are being released on the MED website today.

The stocktake was a thorough and robust process, in which we carefully weighed up the evidence and to the extent practicable, analysed the considerable data before us.

Lastly, but perhaps most importantly, my office was inundated with literally hundreds of letters, emails and faxes from New Zealanders The vast majority of these signalled a strong desire for reform.

Clearly, we had a strong mandate for change.

To develop the best package of measures designed to address these underlying concerns, a range of alternative scenarios and policy options were considered:

· An enhanced version of the status quo settings (including already announced improvements).

· LLU and wholesaling measures.

· A range of incumbent separation options and · Alternative infrastructure incentives and provision.

These scenarios were tested in a range of qualitative and indicative quantitative analyses. They made clear that the best results were from a mutually supporting package of policies, future-proofed against ongoing market changes, as set out in the stocktake cabinet paper.

We recognised the importance of investment both by incumbents and entrants and considered information placed before the stocktake by a range of parties.

It is my pleasure to announce today that as of now, an extensive set of research and policy documents has been released and can be found on the Ministry of Economic Development website – www.med.govt.nz.

This illustrates the thoroughness of the stocktake process and the range of information that was complied.

It also reflects our commitment to openness and transparency – within of course the appropriate guidelines of commercial confidentiality and the normal provisions of the Official Information Act.

Implementing the reforms: roadmap to 2011

The best strategies are utterly wasted unless they are well implemented.

My third key message today is, therefore that the government is determined to bring the benefits of cheaper, faster broadband to New Zealand as quickly and comprehensively as possible.

In the past I have cautioned against unrealistic expectations, noting that full implementation could take until 2007-08.

Today I wish to make clear that the government has heard calls to minimise any delays and the resulting uncertainties in the market, and is determined to accelerate the change process by:

a) Passing the Telecommunications Amendment Bill, introduced on Monday, as quickly as practicable through the House, taking into account submissions to the Select Committee and, where appropriate, other parallel developments.

b) Signalling to the Telecommunications Commissioner that, while fully respecting the independence of that office, the government wishes to see preparations conducted alongside the legislative process, not sequentially, where that is practical and appropriate.

c) Continuing to push forward policy work on related matters such as the TSO review, wireless broadband spectrum and other stocktake priorities.

d) Working with appropriate, market-based responses to the new regulatory environment, such as the recently established working groups on service descriptions, while maintaining appropriate independence to ensure the integrity of legislative and regulatory processes.

Of course the announcement yesterday by Telecom of its intention to voluntary separate its retail and wholesale businesses is a potentially positive development that we will want to consider in detail. An initial scan of the announcement indicates that there may be significant differences between Telecom's proposals and, for example, the BT Open reach model. We will need to give this careful consideration. My officials will be discussing the details with Telecom and reporting to me in due course.

The Telecommunications Amendment Bill

Let me now turn to the Bill, introduced on Monday of this week and scheduled for first reading as soon as possible. This fulfils our promise to have legislation in the House by mid-year.

In essence, the Bill amends the current Act to ensure that service providers can get more effective and timely access to services regulated under the Act.

The key components of the Bill are:

· Introducing local loop unbundling and 3 supporting services that provide for backhaul and co-location of equipment; and

· Amending the existing unbundled bitstream service (which is a form of wholesale broadband) and its supporting backhaul service to remove speed constraints. This amendment will also clarify that an access-seeker can purchase this wholesale service without any requirement to purchase an analogue telephone service – this is often alternatively described as being able to purchase 'naked DSL';

· The accounting separation provisions of the Bill will empower the Commission to require Telecom New Zealand to prepare and disclose information about its retail and wholesale business activities as if they were independent entities. The Bill proposes that the Commission will define how Telecom's business activities and services are allocated between wholesale and retail. This will increase the transparency of the sector and is crucial to ensuring efficient commercial and regulatory outcomes and to reducing incentives for undue discriminatory and anticompetitive conduct;

· Introducing a Standard Terms Determination process, which will allow the Commission to set standard terms of supply for a regulated service across all access seekers and access providers. Also included is a process for parties to subsequently "customise" their terms of supply on a bilateral basis;

· Removing provisions in the Act that previously restricted access seekers from seeking determinations where they had commercial agreements for supply of the service, by repealing sections 22(a) and 22(b);

· Restricting the ability of an access provider to take prejudicial action against an access seeker who applies in such circumstances;

· Enhancing the enforcement regime of the Act, by providing a set of graduated remedies that the Commission can apply to ensure compliance with statutory and regulatory obligations. This includes increasing the flexibility of the clarification process in order to allow the Commission to efficiently resolve disputes that arise around interpretation of its decisions;

· Inserting via schedule 4 of the Bill a new Schedule 3A into the Act. The new schedule provides for a formal process for the Commission to accept offers from access providers that they will supply a telecommunications service to all potential access seekers, without the need for more formal regulation. The Commission can then consider such an undertaking as an alternative to regulation, when they are conducting a Schedule 3 investigation;

· Introducing an information disclosure and accounting separation regime to address the information asymmetries between access providers, access seekers and the regulator.

· Requiring the Commission to monitor competition in, and the performance and development of telecommunications markets. The Commission will be required to make reports and summaries of relevant information publicly available;

· Empowing the Minister of Communications to recommend regulations to address issues relating to the handling of consumer complaints by telecommunications service providers or to address emergency call service availability, I am advised that the TCF has made some progress toward developing an industry-led scheme for dealing with consumer complaints. I look forward to seeing this initiative deliver tangible and demonstrably independent benefits to consumers, within agreed timeframes.

The Bill also provides for a number of further amendments to address implementation issues that arose from the implementation review conducted in 2004 and announced pre-election. These are designed to make the process of the Commission faster, more flexible and more decisive. They include the ability of the Commission to make multi lateral determinations, measures to prevent inferior 'contracting out' of regulated solutions, and improvements to the ability of the Minister to accept or reject or seek reconsideration on parts of a Commission recommendation

The Telecommunications Amendment Bill will go to a select committee for consideration, with a view to its passing into law by the end of 2006. I invite the public, industry and other stakeholders to make submissions. We would like as much input as possible.

The government also welcomes positive reactions in the market to the proposed regulatory package.

In particular I note Telecom's announcement of its intention to voluntarily separate its wholesale and retail businesses and to put in place externally auditable non-discriminatory measures. The government will study these announcements in detail. We will consider what implication (if any) they will have on the proposed regulatory package. No doubt Telecom New Zealand, among many others, will also make submissions to the Select Committee considering the Bill.

Ultimately, the successful and rapid implementation of this legislation depends on the ability of service providers to operate in a new competitive environment with clear rules that produce results in the national interest.

We need market players to realise the new potential in the market for innovation, growth and development. The signs so far appear cautiously positive.

Our role is to create the right regulatory mix in the telecommunications environment to ensure this happens.

In the end, it is up to the industry to respond to these new conditions and help New Zealand realise its digital future.

And it appears that this is indeed happening. Already, since this package was announced, some market players have announced plans to increase investment. Industry groups are meeting to discuss service descriptions and market participants are indicating a keenness to move forward. Voluntary structural separation of Telecom NZ is being pursued.

There have been specific indications of investment in DSLAMs required to make LLU happen, plans for WIMAX deployment, and newspapers have reported on plans to lay fibre to homes in the Auckland region.

Parallel Policy Developments

The legislation is just one aspect of our telecommunications agenda, as set out in the broader digital strategy.

We have ongoing work in a number of other digital areas.

Some people in rural areas were concerned that the reforms would serve as a disincentive for service providers to invest in rural areas.

Officials are currently working on a rural broadband strategy in consultation with stakeholders and other market participants. I am confident that the rural customers will benefit from increased competition.

We will also conduct a review of the Telecommunications Service Obligation. We want to ensure that the TSO instruments are appropriate for the current market. We will be issuing a discussion paper seeking your views.

A year on from its launch, the Digital Strategy has been very successful.

The strategy is our roadmap to achieving our ICT goals – set out under content, connection and confidence.

Its a practical roadmap for harnessing the power of ICT - and integrating it into businesses, schools, communities and homes.

The Digital Strategy seed funding – the Broadband Challenge and the Community Partnership Fund – attracted a high level of interest and some excellent applications.

In addition to all this, we are also:

· Addressing ICT safety and security concerns including the introduction of anti-spam legislation and legislation to address intimate covert filming; · Supporting the education and awareness-raising work of the Internet Safety Group; · Encouraging industry codes of practice such as that for mobile phones, and examining ways in which Internet security can be improved; · Ensuring that the public sector is a smart user of ICT through the review of its telecommunications infrastructure; · Progressing the MTR decision as advice becomes available; · Optimising spectrum use for broadband and wireless technologies; · Working towards the next budget.

Conclusion

The title of this speech is "roadmap to the top".

This is literally our tactic - to plot our steps to get to where we need to be – the top half of the OECD for broadband by 2011 and the top quarter by 2015.

Considering our current position, this is a bold vision. But it has to be.

If we are serious about our economic transformation; if we are serious about building a knowledge-based economy; if we are the small, smart country that I believe we are - we must have a bold vision and bold steps to achieve it.

So in that vein, I expect that in 2015 we will no longer be talking about "broadband" at all. The size of the pipe will not matter, as it will be taken for granted. Connectivity will be ubiquitous.

I expect that in 2015 applications requiring a high-speed connection will be not only essential but also expected - for the productivity of businesses; and that it will create new business models for innovative Kiwis.

I expect to see a greater variety of end user devices, the convergence of broadcasting, telecommunications and IT – adding mobility where we demand it, increasing choice and putting users firmly in control.

The possibilities are endless.

And this Labour-led government is providing a responsive legislative framework that will better allow these possibilities to be a reality in New Zealand.

But the only way this can happen is with the participation of New Zealanders. We need Kiwis to pioneer fresh developments in ICT, to quickly embrace the new telecommunications environment – to increase our competitive edge globally and build the knowledge-base economy we need to prosper.

ENDS

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