UPDATED: End of free local calling?

Labour asks if the newly introduced SOP wipes Kiwishare obligations, Minister says obligations split between Telecom2 and Chorus2

On Thursday afternoon in Parliament Labour asked if Telecom’s Kiwishare obligation will be removed if a Supplementary Order Paper - introduced this week as part of the Telecommunications Amendment Bill - is passed. In the explanatory notes in SOP No 247, which was introduced on Tuesday, it reads: "Makes changes to provisions relating to deemed TSO instruments and removes references to the KSO (Kiwi share obligation) (new clauses 6B, 7A, 7B, and 23HFA). These amendments are to reflect that the KSO will not be operative following the structural separation of Telecom." The Kiwishare historically included the obligation by Telecom to provide a free local calling service to every resident at a standard monthly fee, regardless of whether they live in rural or urban areas. It also included restrictions around foreign ownership of Telecom, such as no single shareholder may own more than 10 percent of shares with government approval. However, the provisions relating to free local calling and rural services were taken out of the Kiwishare obligation and transferred to the Telecommunication Service Obligation when the Telecommunications Act was passed in 2001. When Labour raised the query ICT Minister Steven Joyce addressed ICT spokesperson Clare Curran's questions by pointing to a Q and A document posted on the MED website on May 24. It claims the following:

  • The Kiwishare obligations in regards to foreign ownership restrictions remain with Chorus2.
  • Kiwishare obligations such as free local calling and rural services, which are now part of the TSO (Telecommunications Service Obligation), will be split, as appropriate between Chorus2 and Telecom2. These separate sets of obligations will be comprehensive and enforceable by the Crown directly against the relevant party.

Free calling is safe, for now Yesterday evening Joyce responded to a question by Computerworld about the future of free local calling by email. “No, this is not the end of free local calling or the restriction on price increases.The Kiwi Share Obligation in regard to local calling was superseded ten years ago by the Labour government with the TSO deed. That TSO deed obligation will continue and it will be split between the separated companies – Telecom and Chorus.

Labour is either unaware that their government made the change or are deliberately setting out to confuse," Joyce replied.

With regards to foreign ownership rules, these won’t apply to Telecom2. As Joyce told Parliament yesterday, just as TelstraClear and Vodafone aren’t subject to foreign ownership rules, neither should these apply to Telecom2.

So conceivably Telecom2 could eventually become wholly owned by an overseas company. As the majority of the regulated services sit with Chorus2, it retains the obligations relating to foreign ownership.

Telecom2 keeps PSTN

Computerworld asked Joyce if the PSTN – that is the fixed line voice access – will now be part of Chorus2, not Telecom2 post structural separation. He replied:

“No, the PSTN will sit in Telecom Retail after structural separation. The amendment takes account of the changes to the service description made following a Commerce Commission recommendation concerning resale of PSTN services.” So that would explain why the TSO obligations are split between the two companies. It appears Telecom2 will retain some responsibility for ensuring delivery of a copper-based voice service at the same price to all New Zealanders.

Chorus2 remains in NZ ownership The Kiwishare goes but restrictions on foreign ownership for Chorus2 remain. Although these restrictions are not enshrined in law, but in a deed, according to the MED document. “There would be tax consequences for Telecom’s Australian resident shareholders if the current Kiwishare continues in its present form during de-merger. Therefore it will be converted to an Ordinary share and Chorus2’s Kiwishare obligations will instead be provided for in its constitution and in a Deed with the Crown. The Government will also own a small number of ordinary shares in Chorus2 so that it can protect its rights as a shareholder.”

Accounting separation wiped As an aside note, SOP 247 ends the accounting separation requirements that were put in place following the operational separation of Telecom. Computerworld asked Joyce if it would go, he replied:

“Yes. Accounting separation will end once this Bill passes into law because we are moving to two completely structurally separate companies.

Industry submissions indicated that information produced by accounting separation was of little value. The Commerce Commission will have access to financial information about the fibre network from the outset of the build.”

The Telecommunications (TSO, Broadband, and Other Matters) Amendment Bill – which includes the changes outlined in SOP 247 – is expected to have its third and final reading in Parliament next week.

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