Three-way separation for Telecom: Select Committee

Operational and accounting split, but not full structural separation

The Parliamentary Finance and Expenditure Select Committee released its Amendment to the Telecommunications Act 2001 today, a week ahead of its formal reporting to parliament.

Wide-ranging regulation is on the cards for Telecom, with the Committee going further in some areas than the original bill drafted by Minister of Communications David Cunliffe after his industry stocktake earlier this year.

As been widely tipped in media, the majority of the committee recommends operational and accounting separation of Telecom into three types of business: a fixed network access services unit, one or more wholesale business divisions, and one or more retail units.

These can be owned by the same company and operate under one board of directors, unlike the harsher structural separation which requires all units to be formally indepenent of one another.

The enforcement of the new regulation will be in the form of civil infringement notices, similar to those issued by the Australian Consumer and Competition Commission (ACCC). Telecom faces a maximum penalty of $10 million should it fail to comply with its legally binding separation undertaking, without a reasonable excuse.

Merit reviews of the Commerce Commission's decisions, as advocated by National's telecommunications spokesman, Maurice Williamson, Vodafone and Telecom, will not form part of the new regulation. The committee considers the Commerce Commission the specialist body on telecommunications industry regulation and is therefore best placed to determine technical and factual issues. The committee also felt that protracted reviews that hinder timely resolutions of industry disputes should be prevented.

In terms of practical measures to boost competition in telecommunications, the committee clarified that the Unbundled Bitstream Service (UBS) can be supplied as "Naked DSL". This is DSL without the requirement to buy analogue voice service from Telecom as well, and the retail-minus wholesale price will expressly only take into account the cost of the local loop network.

Local Loop Unbundling is also part of the new bill, and Telecom will not be compensated for having to provide wholesale access to the copper network. It will however be allowed to charge "efficient" wholesale rates according to the total service long-run incremental cost-based pricing methodology (TSLRIC).

The committee specified co-location service for unbundling as including access to and use of space in, on or around Telecom's local Telephone exchange or distribution cabinet. Telecom had argued for a demarcation that would limit access to cabinets with active equipment installed, leaving passive distribution cabinets nearer customers out of unbundling.

The minister must now consider the report's recommendations. In a written response to the committee's report, Cunliffe says, "The government will consider the recommendations before deciding on the next step in the progress of this bill". Cunliffe and the government are under no obligation to accept the changes before seeking a second reading of the bill.

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