A new wave

A new government-led regime for telecommunications is set to shake up an industry that has remained untouched by legislative hands for almost a decade. But are we changing simply for change's sake or is there a goal at the end of it all?

A new government-led regime for telecommunications is set to shake up an industry that has remained untouched by legislative hands for almost a decade. But are we changing simply for change’s sake or is there a goal at the end of it all? Paul Brislen looks at where we have come from and where we are heading, and compares how three other countries are tackling the issue.

A brief stroll down memory lane. The year is 1992 and Computerworld runs a story about BellSouth threatening to pull out of New Zealand unless the government stands by its promise to deliver a level telecommunications playing field.

“We need to have a clear position by the end of August [1993] otherwise we will have to question our ability to get to market on time,” said New Zealand manager Keith Davis.

In the same story, Clear Communications was described as being “bogged down in court cases” over its access to local call services.

“We want to go ahead on the same terms as we originally agreed,” said Clear general manager Neil Tuckwell.

Telecommunications minister Maurice Williamson wanted to appoint an independent observer to attend interconnection meetings as a kind of “marriage guidance counsellor” although one with “no speaking rights other than in a clarification role”.

Williamson said at the time “if my faith proves to be badly placed we will have to look at something else”. By the time he left office in 1999 Williamson was still threatening to act if Telecom did not allow competitors to have fair access to its network. BellSouth did eventually pull out of New Zealand and when British Telecom finally bought 100% of Clear, Clear chief executive Tim Cullinane said the biggest advantage would be that BT had lots of lawyers and that finally he would have the legal resources to fight Telecom.

Deregulation: 1987

The New Zealand situation was created in 1987 when the Labour Government, under the auspices of its communications minister Richard Prebble, deregulated the telecommunications market. From the ashes of the Post Office sprouted Telecom, while the postal side of the business became go-ahead SOE NZ Post.

Telecom was given ownership of the lines in the ground, the database of users, the Yellow Pages and white page directories and given complete freedom in an unprecedented move — no regulator was created and it was decided New Zealand’s general commerce laws would be enough to control the new company. In September 1990 Bell Atlantic and Ameritech bought the company for $4.25 billion. In 1993 both owners began selling off portions of their shares, after extracting healthy dividends, and today only Bell Atlantic retains a significant shareholding, controlling just under 25% of the company.

In those 13 years successive governments have threatened to take action over a number of issues, most of which are still outstanding. These include:

  • Number portability, the ability for customers to take their phone numbers to a different provider
  • Access to the local loop for competing telcos
  • Interconnection agreements between telcos.
As early as 1992 the Commerce Commission acknowledged problems with Telecom being both supplier and controller of the means of competition. A report into the sector sing-led out a lack of competition in network and value-added services as being of particular concern. In very few markets around the world was the incumbent telco allowed to retain control of the infrastructure, the local loop, without any form of specific regulatory control.

In 1997 Australian law firm Gilbert & Tobin released a report entitled International Trends in Telecommunications Regulation — Moving Away from the New Zealand Model. In it the firm argues that New Zealand was, at the time, “ the only country which relies almost entirely on general competition laws enforced through the courts” to regulate telecommunications. The report says the New Zealand model has not found “international acceptance” and has largely been rejected by other countries as being unsuitable for the development of a “competitive telecommunications market”. The report goes on to say interconnection agreements are vitally important to the growth of the market, especially in the early formative years.

“Active regulation, particularly in interconnection, plays an important role in promoting competition, particularly at the beginning of the interconnection regime”.

The report went on to say successful industry specific regulations can be reduced as the market matures, as competition will be strong enough to stand on its own by then, but the early days are critical to the development of a strong market.

Telecom and Clear Communications, the latter being the first major player to arrive in New Zealand following deregulation, spent many years arguing over the charging regime within their interconnection agreement.

0867 debate

In June 1999 Clear finally reached the point where it was about to send more traffic to Telecom than came the other way, and so would receive a large payment as part of the interconnection agreement. Telecom, however, changed the rules. It said internet traffic was about to cause major problems for its local loop and so introduced a new numbering system, prefixed with 0867, and initially claimed the new network, IPNet, would solve the problems. Since new numbers weren’t covered by the old interconnect agreement, Telecom wouldn’t then have to pay Clear anything. End users would have to pay two cents per minute if they continued to use old dial-up numbers past a 10-hour-per-month mark, thus limiting the amount of traffic coming from Clear to Telecom.

Clear cried foul and legal action against Telecom was threatened by a number of companies, even after government officials declared Telecom’s move was legal. It was only after the introduction of so-called free ISPs using Clear’s network, thus bumping up the amount of traffic travelling from Clear to Telecom, that a new agreement was finally reached.

The only restriction government placed on Telecom in 1990 was the Kiwi Share Obligation (KSO). In essence, Telecom was required to provide free local calling to every New Zealander, to ensure rural callers were not charged more for calls than urban callers and to ensure the monthly lines charge did not increase by more than the inflation rate each year. These restrictions were drawn up in the years before the internet and world wide web became household names, and Telecom has long argued it is not obligated under the KSO to offer free calls for data traffic. Telecom also argues the cost of the rural network is so high that it more than cancels out any gains the corporation makes from owning the local loop.

After the introduction of the 0867 numbering plan in 1999, then telecommunications minister Maurice Williamson introduced new regulations, the Telecommunications (Information Disclosure) Regulations, that would require Telecom to reveal how much it costs to run the rural network and also how much it makes from the local loop. Before Telecom made its first disclosure, a change in government brought about a telecommunications inquiry that would overtake the new act entirely.

Telecommunications inquiry

The inquiry, headed by respected businessman Hugh Fletcher, was established to “assess the regulatory regime for telecommunications and recommend any changes” according to Fletcher. The inquiry team was asked to investigate issues surrounding the interconnection agreements:

  • local loop unbundling
  • the Kiwi Share
  • network management
  • the explosion in cellphone technology
  • numbering plans.
It received submissions from within the industry as well as from the public, released a draft report, listened to more submissions and released a final report towards the end of 2000.

Telecommunications Minister Paul Swain and cabinet made relatively few changes to the report’s recommendations.

The new rules are simple — the commissioner, based at the Commerce Commission, will be able to resolve disputes over regulated services, report to the minister on desirability of regulating additional services and monitor and enforce Kiwi Share obligations.

Regulation will fall into two distinct categories — designated and specified. Services in the “designated” category are the more serious of the two — pricing controls will be set if the players cannot agree on terms. As the commissioner takes up their role, services to be designated include the wholesaling of the local loop, number portability and interconnection agreements. While the government has decided to force Telecom to wholesale the local loop rather than unbundle it entirely, it hasn’t ruled LLU out for all time. Rather, if wholesaling does not provide the competition it desires, the commissioner can call for the loop to be unbundled if necessary. No services have been “specified” at this time. Rather than follow the Australian model where the entire decision can be argued in court, appeals are restricted to points of law only and the decision is binding until the court returns its findings.

The Kiwi Share Provision also undergoes a makeover. It specifically includes data calls as local calls and requires Telecom to upgrade its network to provide 14.4Kbit/s to 95% of New Zealand residential lines and 9.6Kbit/s to 99% within the next two years. Telecom will undertake a costing of the Kiwi Share with the final cost determination to be made by the commissioner.

The commissioner will also monitor the uptake of broadband initiatives, such as DSL, and in 18 months consider the case for a universal service obligation for higher speed data and competitive tendering of Kiwi Share, making it a universal service obligation.

Telecommunications bill

The government introduced its Telecommunications Bill to parliament earlier this month, as the first step on the road to the new telecommunications regulatory regime.

The bill was to be referred to the Commerce Select Committee for its first reading last week.

The bill should be made law by the end of September and the new regime firmly in place by the end of the year.

“The government’s objective is to ensure delivery of cost-efficient, timely and innovative telecommunications services on an ongoing, fair and equitable basis to all existing and potential users,” says the government’s telecommunications objective paper.

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