Analyst criticises TSO transition

Ovum says unnecessary damage is done when universal service transition arrangements are neglected

Telecommunications analyst Ovum is criticising New Zealand's approach to delivering universal telecommunications services in the wake of the changes to rural services policy that sent Telecom's shareprice into a tailspin last week.

Under the new policy, an industry levy will no longer be paid to Telecom New Zealand, but will be diverted to the government's Rural Broadband Initiative to improve broadband access in rural areas.

However, Telecom New Zealand remains the voice provider of last resort.

 

David Kennedy, Ovum's research director, based in Melbourne, says this latest announcement is a part of a "major shift in the way governments are approaching universal service provision".

"The traditional approach, centered on basic services and industry levies, is being displaced by a much more expansive approach based on public broadband infrastructure investment," he says.

Ovum says that until now, New Zealand has had a similar approach to most countries: the regulator levied industry participants on a weighted basis and the levy was passed to the incumbent, which bore the obligation to provide services in rural areas. Under the new scheme, however, levy funds of $42 million a year, will be applied to the Rural Broadband Initiative (RBI). An additional NZ$48 million will be provided directly by the government. "One of the unanswered questions is whether it makes sense for Telecom New Zealand to offer TSO services where other providers are offering government-subsidised broadband services. There is no process for these new providers to shoulder the TSO where they become the dominant provider of broadband," Kennedy says in a note. Last week, Telecom issued a statement that as a result of the changes its EBITDA guidance for 2011, 2012, and 2013 would be affected by up to NZ$56 million and its shares tanked. Ovum says the same changes are under way in Singapore, Australia, Greece, the UK and the US, as well as in the EC’s consultation on the future of the Universal Service Directive However, while the change appears to have been smooth in Singapore, the process has been more contentious in New Zealand and Australia. "It is clear that government intervention has damaged shareholder value. New economic value to offset these losses is slow to appear," Kennedy says. "It is unlikely that this disruption could be eliminated; after all, structural change is precisely what these governments are trying to achieve. However, unnecessary damage is done when transition arrangements are neglected. "For example, it is not obvious why the New Zealand incumbent should continue to bear the cost of providing the TSO to a shrinking number of customers when a government-funded competitor can do the job just as well. Ultimately, it makes sense for the dominant operator in a region to undertake this task, and for a transition to new TSO arrangements to be mapped out. "While keen to promote new technologies and investment, governments are less keen to map out a transition away from legacy arrangements such as traditional universal service obligations. This remains a gap in policy that, sooner or later, must be addressed."

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