Minister rejects Telecom's initial request for relief, offers compromise

Changes to Operational Separation undertakings made

ICT Minister Steven Joyce has rejected Telecom’s latest – and most substantial – request to be let off some of its more onerous commitments under operational separation and has instead offered a compromise solution.

In May Telecom wrote to the Minister asking for three substantial changes:

*that it be let off the requirement to migrate 90% of Telecom Retail broadband customers (about 500,000 connections) to the same copper based service as its competitors by 31 December 2010.

*that it be let off the undertaking to provide 17,000 VoIP connections over the copper line by 31 December 2010.

*that the undertaking to provide a new set of operational support systems be created for Telecom Wholesale that is separate to Chorus be delayed.

The request – known as Variation 4 – met with widespread opposition in the industry, with 10 submissions (from competing ISPs, the Commerce Commission and InternetNZ) largely opposing parts or all of Telecom’s request. Only one submission (from TUANZ) supported the proposal.

In a statement today Joyce says that following advice from Ministry of Economic Development officials and the submissions it received, he wrote to Telecom CEO Paul Reynolds rejecting Variation 4 in its first iteration.

"However I indicated I was prepared to approve a number of changes to the undertakings, subject to Dr Reynolds’ acceptance of certain conditions,” he says. "Dr Reynolds’ has since provided a revised proposed variation that addresses all the conditions, and I have informed him that I have approved the proposal.”

Compromise solution

Under the revised variation the deadline for migration of retail broadband customers has been pushed back to 90 percent of retail connections by 31 July 2012 and 100 percent by 31 December 2012.

Telecom is expected to set a date for resolving issues around migrating customers to copper-based VoIP services and report back on progress by 31 March 2011. It must also consult with service providers over the implementation of separate systems for Telecom Wholesale by 31 March 2011.

In correspondence published on the MED website today, Reynolds says he appreciates the “pragmatic approach” taken by the Minister. “I agree with the sentiment of your proposal, and the need to progress our work in these important areas wherever possible.”

Operational Separation vs Structural Separation

With the government yet to announce a decision on who it will partner with on the Ultra Fast Broadband project in most of the country, it remains to be seen how this new variation will play out in the UFB world. In order for Telecom to participate it must structurally separate.

In his statement today Joyce says there is compatibility: "I believe these changes will serve the best interests of consumers and also allow Telecom to develop services and systems that are consistent with changes being brought about by the Ultra-Fast Broadband Initiative," he says.

Telecom published a presentation yesterday showing how it proposes to divide its assets if it is structurally separated into two companies notionally called Chorus2 and ServCo. Under the split PSTN access, UBA and POTs services - which are currently part of Telecom Wholesale - would become part of ServCo’s assets.

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Tags telecomSteven JoycePaul Reynoldsvariation 4

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