Five points on the paper that proposes Telecom split

The supplementary order paper for the Telecommunications (TSO, Broadband and Other Matters) Amendment Bill

The Supplementary Order Paper for Telecommunications Amendment Bill is part of the legislation that will govern how Telecom will be split into two separate companies should it acquire partnership in the Ultra Fast Broadband initiative.

Here are five key points to note:

1. Page 74 of the Supplementary Bill: “The business acquisition exemption in new section 69XB (1) c is intended to provide for a scenario in which Chorus might be selected as the only partner in a region. The Crown may provide UFB funding in these circumstances through investment in Chorus shares or assets. The section authorises any acquisition by the Crown of Telecom’s shares or assets pursuant to its selection as a partner”.

This could provide the legislative framework to buy back Chorus assets with taxpayer money. TUANZ CEO Paul Brislen notes in his blog today: “So, buying Telecom, eh? Big call. Big. But it would be very clean, very easy to implement and would make a lot of sense if we bought the network assets and avoided the retail side of things.”

Buying back Chorus was of course suggested by David Skilling in his paper on fibre connectivity in 2008.

2. Page 2 on TSO reform: “ The chief executive of the Ministry must at the start of 2013, commence a review of the deemed TSO instruments and the provisions of this Act”

A review of the TSO is scheduled more than 18 months after the Rural Broadband Initiative is to be finalised? The TSO is a complex, many-headed beast and there has already been widespread industry consultation undertaken by the Commerce Commission. (As an aside, two independent sources have told Computerworld that Federated Farmers is holding meetings with the industry today, so unhappy are they with the RBI).

3. Page 10: “The Minister must no later than 1 January 2018, commence a review of the policy framework for regulating telecommunications services in New Zealand, taking account of the market structure and technology development and competitive conditions in the telecommunications industry at the time of the review, including the impact of fibre, copper, wireless and other telecommunications network investment.”

How does this review tie into the period of regulatory grace of ten years that is being negotiated by Crown Fibre Holdings for the Local Fibre Cos?

4. Page 12: “Telecom must prepare an asset allocation plan and submit to the Minister and the Commission no later than 40 working days after the date on which this section comes into force.”

Tough timetable backed up with penalties that amount to $1 million (and $50,000 per day) for breaches. We have been here before. Operational Separation provides for financial penalties for failure to comply with deadlines, Telecom has continued to argue the timetable originally agreed to with the then Labour government is too tough - the latest, and most extensive exemption to op sep undertakings was known as the Variation 4 request.

5. The timetable – the industry has until this Friday to make submissions to the Supplementary Order Paper. TUANZ, InternetNZ and TelstraClear have all publically stated this is not long enough. In a statement on Friday, TelstraClear CEO Allan Freeth said the proposals will have far-reaching impact on all New Zealanders. “The latest proposal is yet another salvo in a raft of highly complex and far-reaching proposals delivered to the industry. It seems to have been delivered in haste and with little room for public consultation,” Freeth said. “The devil is always in the detail and in this case the detail can have enormous consequences for competition and for consumers. The proposal outlined threatens industry competition and consumer rights, and looks set to unravel an industry that’s taken 20 years to mature,” he said.

UFB and RBI – a brief recap

The government has put up $1.5 billion of taxpayer funding for an urban fibre network that will take 10 years to roll out, which it calls the Ultra Fast Broadband network, that will pass the premises of 75 per cent of the population. This is to be achieved by forming Local Fibre Cos in conjunction with private partners in several regional areas.

The central North Island (including major provincial cities such as Hamilton) and Whangarei have already been allocated to line companies. Telecom is battling for the remaining 25 areas, its competition is Flute networks in Dunedin (a loose alliance of electricity companies), Enable Networks in Christchurch (an independent fibre company backed by the Canterbury Development Corporation, which has already connected major users such as the district health board and a large number of schools to its network). And Vector in Auckland – a lines company which has created a fibre network connecting schools on the North Shore and some high profile commercial clients.

For the remaining 25 percent of the population the government has created the $300 million Rural Broadband Initiative, of which there is around $48 million of taxpayer funding in the form of a grant and the remainder an industry levy (that is, those with the most customers pay the lion’s share – which in effect means Telecom and Vodafone).

The levy replaces the TSO which was designed to ensure that customers in uneconomic rural areas didn’t pay more than those in urban areas. Before the RBI, Telecom received the entire amount as compensation for providing a voice service to rural customers. The RBI will roll out fibre to 97 percent of rural schools and these will serve as connectivity hubs, with celltowers connected to the fibre that will provide wireless broadband to surrounding communities. It was recently announced that Telecom and Vodafone are the preferred government partners for the RBI.

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