Alternative Proposal To Operation Separation

15 May 2007

ISPANZ Considers Telecom's Alternative Proposal To Operation Separation

The Internet Service Providers' Association of New Zealand (ISPANZ) today filed with the Ministry of Economic Development (MED) its response to Telecom's alternative proposal to Operational Separation.

ISPANZ concurs with the Minister of Communications David Cunliffe that Local loop Unbundling (LLU) and Unbundled Bitstream Access (UBA) are the top priorities in telecommunications reform. ISPANZ suspects Telecom may be playing with industry concern that progress on these timelines be maintained and expresses its support for the Government's Operational Separation process.

In the long term ISPANZ is not against the concept of structural separation for Telecom's network division, but there are other substantive issues with Telecom's proposal. These include an "all-or-nothing" requirement for the proposed changes that would mean starting again to produce legislation, a departure from the proven British Telecom model, increased wholesale pricing, and weaker equivalence requirements.

ISPANZ President David Diprose says the legislative changes required would cause substantial delays, and diverge from the mandated path. "The Government's legislation was passed by an overwhelming majority in Parliament and ISPANZ does not want to re-litigate it."

The British Telecom model of operational separation involves a three-way split - network, wholesale, retail - and is working well in practice. Telecom's proposal appears to be a variation on its two-way split proposal that last year was not taken up by the Select Committee.

ISPANZ would be concerned at the removal of "arms-length", or independence, requirements for the Telecom Wholesale business unit. Telecom has proposed they only apply only to a subset of regulated services within the wholesale business. And also wants to provide group incentives to wholesale business unit employees. "These settings would create ambiguity for staff operating in that unit and lead to a more complex situation in terms of delivering equivalence to wholesale customers," says Diprose.

That equivalence, applied across network and wholesale services, is key to providing a competitive market. At the wholesale level, the ability for ISPs to purchase services such as UBA on the same basis as Telecom Retail is a key early rung in the "Ladder of Investment" approach that underpins the telecommunications reform. "This equivalence provision is reinforced by clear boundaries, no group incentives, and independent oversight," says Diprose.

ISPANZ regards Telecom's investment arguments as unconvincing. "Regulated pricing mechanisms already take investment incentives into account and ISPANZ members stand ready to invest, or are already investing, in infrastructure and services in anticipation of successful implementation of the Government's regulation," says Diprose.

A copy of ISPANZ submission is attached.

ENDS

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