TSO parties debate models, pricing

The Commerce Commission has warned telcos not to expect Telecom to bear the costs of the Telecommunications Service Obligation (TSO) simply to encourage competition.

The Commerce Commission has warned telcos not to expect Telecom to bear the costs of the Telecommunications Service Obligation (TSO) simply to encourage competition.

The four-day Commerce Commission conference on the TSO ended in Wellington yesterday. Telecommunications commissioner Douglas Webb and fellow Commerce Commission officials aimed to measure the true cost of the TSO on Telecom, and decide how it might be shared with its competitors.

Commissioner Paula Rebstock cautioned telcos not to “fall into the trap of thinking of competition as necessarily a good thing in itself", and that Telecom should absorb the costs of the TSO to encourage competition.

“The purpose of the Telecommunications Act is to deliver benefit to end users,” she said, “not competition for competition’s sake.”

If encouragement of competition is taken too far, she says, it will lead to inefficient over-investment.

The commissioner’s own “cornerstone paper” on TSO says competition should be promoted, said Graham Louth, presenting on behalf of TelstraClear.

The two objectives are often surprisingly at variance, since to allow new entrants “headroom” to make an income while setting up, prices were often set higher than the most efficient level.

Although much focus goes on the cost to Telecom of providing connections to far-flung rural areas, 84% of New Zealanders are urban dwellers, and these bear ultimately, the majority of the high cost of telecommunications, said TelstraClear presenter Grant Forsyth. “Telecom’s residential business is hugely profitable,” he said. “Profitable exchanges far outweigh loss-making ones.”

The cost of internet provision, particularly with users’ increasing tendency to leave connections on continuously, is a habitual bone of contention. Rebstock specifically queried that point. TelstraClear pointed out that once internet access had been provided to a household or business, it created a wealth of opportunity for additional, more profitable services.

Even when a true Universal Service Obligation was demanded of a telco, as it is in some European countries – requiring the company to act as a “carrier of last resort” to any customer who requested service – the cost of subsidising the universal service provider had often been seen as so small as not to repay the costs of its collection.

The NZ Telecommunications Act's TSO is not a USO.

Much discussion revolved around the building of a satisfactory model of a modern, efficient telecommunications network, so costs can be realistically estimated.

There are two basic approaches to this; the “top-down” approach, which takes the existing network and makes small changes to eliminate evident inefficiencies; and the “bottom-up” approach, which seeks to build a model of a maximally efficient network from scratch. These two techniques are quite likely to yield different evaluations of cost of providing services.

A model done for Telecom by PricewaterhouseCoopers adopted a hybrid of both techniques, but was still picked apart by presenters from the competition, pointing to supposed errors and unrealistic assumptions.

It could take as long as 12 months to prepare a realistic model, Louth said. “We don’t have 12 months”, Rebstock replied, asking whether it could be done in three. A “first cut” model might be possible to evolve in three months, and successfully cross-reference with the model built for Telecom to minimise differences, Louth said, but with the proviso that the model’s performance could be evaluated and adjustments made as long as a year down the track.

Join the newsletter!


Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.

Tags Tso

More about PricewaterhouseCoopersTelstraClear

Show Comments