Dawning of a new regulatory regime

Telecommunications commissioner Ross Patterson talks to Computerworld editor Sarah Putt about the role of regulation in the telco market

The telco unit at the Commerce Commission has up to 20 staff and is entirely funded by an industry levy. Ross Patterson was appointed telecommunications commissioner four years ago and the beginning of his tenure coincided with the introduction of local loop unbundling and the operational separation of Telecom. He talks to Sarah Putt about the role of regulation in the telco market.

You came on board with the operational separation of Telecom and the Local Loop Unbundling. That era has now ended – do you think that’s fair to say?

Effectively we’ve had four years of operational separation and (we are now) moving to a structural separation model. We are the first country in the world where a privately owned telco has chosen to structurally separate and that really changes the game altogether in terms of telecommunications regulation.

Most of the issues arise because of the vertically integrated nature (of the incumbent telco), so issues of non-discrimination favouring a downstream retail operation is a consequence of vertical integration of retail and network.

When you separate that you actually remove the economic incentives that lead to a lot of the behaviour that regulators around the world are concerned about. You’ve still got pricing issues in relation to monopoly inputs but you don’t have the added issues of discriminatory behaviour and margin squeeze and all of that.

Operational separation and local loop unbundling – they came late to New Zealand and they came together – did they fail? The fact that we have moved into a new era of structural separation – does that mean that op sep failed?

Not at all. We’ve moved into a structurally separated world because of investment in fibre (networks) in almost every jurisdiction requires state funding and wherever you look – in Australia and Singapore, even in Europe – the state aid rules require open access networks, and structural separation is the cleanest way to get an open access network.

Local loop unbundling has been an outstanding success. Fibre is the next generation but a large number of consumers won’t be getting fibre-based services for a large number of years. It’s going to be a gradual process. So copper-based services will remain the dominant broadband delivery platform for three, four, five years to come.

What is your role in the fibre rollout?

It’s a similar role to the extent that we have oversight of the undertakings that are given by the Local Fibre Companies.

There are some information disclosure obligations, we’ve been given the same monitoring and enforcement powers we had under operational separation. In fact the model is based on the operational separation model and it’s based on that because it was very successful.

What is different is there are a number of parties now subject to this regime – the three LFCs and Chorus – so that’s a bit different having four parties. And because the nature of the incentives to discriminate just don’t exist we would imagine that the role is going to be far more of a reviewing the KPIs and overseeing that, rather than having to investigate.

The pricing has been negotiated in contracts with Crown Fibre Holdings and are locked in for ten years - there is a bit of a debate as to whether there’s a mechanism to change prices in that period, but the pricing’s actually been set contractually. We still have the power to launch a Schedule 3 investigation if we thought there were grounds to believe that adding fibre access to the list of regulated services would be appropriate but the reality I think is that the contractual pricing is pretty tight.

Meanwhile you’ve launched a demand-side study and there is a conference coming up in February. You seem to be rattling a few cages in the content industry — why are you looking at content?

The demand side study is a lot wider than that. Effectively the supply side of the equation has been dealt with, there is a regime in place, and we know with reasonable certainty what that looks like for the next ten years.

In New Zealand the decision has been made by the government to invest in the network... so the focus naturally is what are the factors which might lead to consumers saying “we’re interested”.

There are three discussion papers that will come out before the conference. The first paper looks at technical issues – connection, in-house wiring, IP interconnect peering, network neutrality – all of those technical issues, gives an analysis on how they impact and our view of all of those.

The second paper [will be published] on January 24, which is prepared by Ernie Newman on e-health and e-learning and then on February 7 there is a third paper which deals with consumers’ willingness to pay.

We’ve done a survey of consumers and SMEs looking at willingness to pay so applications and content – cloud computing, gaming and video content for consumers is part of that.

Those discussion papers will set the scene. The conference has a first day of international perspectives, and the next day will look at the New Zealand situation with various panel discussions. Content is a subject and John Fellet (Sky CEO) is going to be on a panel discussion with others, so it’s not a content conference, it’s a demand side conference over a wide range of issues.

Which country is more developed in this area than us, and which we could usefully compare ourselves to?

We’re looking at our neighbours Australia, the UK, a couple of European jurisdictions – France and the Netherlands – because they are interesting case studies.

Why is it the Commerce Commission’s role to talk about demand?

One of the new powers given to the commission in 2006 (with the passing of the Telecommunications Amendment Act) was to monitor competition in telecommunications markets and to conduct enquiries and studies into any matter in the telecommunications industry for the long term benefit of end users.

We took the view, once supply issues were being determined, that the biggest issue is what the uptake would be... because the last thing you’d want is a white elephant that won’t be used. The sooner there was an informed debate about those issues, the better it would be for the telecommunications industry and the better it would be for end users.

Tomorrow: In part two of this Q & A, Sarah Putt questions Ross Patterson on the thorny issue of SIM locking.

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