Executive Summary
This report assesses the comparative performance of the New Zealand telecommunications services market in respect of prices applying in mid 2006 for key telecommunications services and the availability and/or uptake of key broadband services, prior to the regulatory reforms announced during 2006 and enacted in December 2006.
Benchmarking is an imprecise comparison methodology and results must be treated with some caution. In general small differences should not be regarded as significant. However, larger differences may be significant especially where differences from OECD top half performance are substantial.
Fixed Telephone Service Relative Performance
The specifications of the OECD fixed public switched telephone network (PSTN) services baskets were comprehensively revised in late 2005 and the basket specifications now include: low, medium and high residential user baskets; a small office/home office business user basket; and a small to medium enterprise user basket. In addition the ratio of fixed-to-mobile (FTM) calls to fixed network only calls in the baskets now vary between 25% and 47%, compared to 10 % previously.
The key fixed telephone service OECD basket benchmark results are summarised in the following table.
| OECD Fixed Telephone Service Basket - August 2006 |
New Zealand Price as % of OECD average |
Quartile rank |
OECD Rank (out of 30) |
| Residential Low User |
119.3% |
4 |
25 |
| Residential Medium User |
114.6% |
4 |
24 |
| Residential High User |
112.1% |
4 |
24 |
| Business Small Office/Home Office |
125.2% |
4 |
24 |
| Business Small-Medium Enterprise |
121.5% |
4 |
23 |
In general, New Zealand's relative performance was ranked in the bottom quartile of OECD countries. Previous relative performance generally ranked in the third quartile. The significant increase in the number of FTM calls in the revised OECD comparison basket is the main reason for the apparent decline in relative performance.
Cellular Telephone Service Relative Performance
The following table summarises New Zealand's cellular ranking using OECD cellular service basket comparison methodology. The OECD/Teligen results for New Zealand are based on Vodafone cellular service plans that require a three year commitment by a subscriber to the particular plan.
| OECD Cellular Telephone Service Basket as at August 2006 |
% of OECD Average |
Country Ranking (out of 30) |
Voice calls per month |
| OECD low user |
119.5% |
20 |
30 |
| OECD medium user |
124.7% |
24 |
65 |
| OECD high user |
110.5% |
21 |
140 |
In general New Zealand's cellular service prices ranked in the third quartile of the OECD based on the Vodafone plans.
If use of a three year plan option was excluded, New Zealand's relative performance would rank in the bottom quartile of the OECD. There is a question about the relevance of including plans requiring a multi-year term commitment in the OECD price comparison basket although there are no rules that specifically exclude inclusion of such options. The Ministry intends to take this issue up with the OECD Secretariat with responsibility for OECD telecommunication service price benchmark methodology.
Broadband Service Relative Performance
Terrestrial based broadband access is available to ~95% of New Zealand's residential dwellings. As at June 2006 broadband Internet access service uptake in New Zealand was 11.7% per 100 people. New Zealand's overall relative ranking remains 22nd out of 30.
In the absence of an internationally recognised broadband service price benchmark comparison methodologies the Ministry developed a broadband service benchmark specification to assist in the evaluation of New Zealand's relative performance. The results of these New Zealand specific comparison baskets are summarised in the following table.
| Broadband Service benchmark as at May 2006 |
% of OECD Average |
Country Ranking (out of 30) |
| residential broadband service (for non-complying 128 kbps uplink speed) |
36% |
2 |
| business broadband service |
76.5% |
15 |
"Multiplay" Broadband Service Relative Performance
So called "multiplay" broadband services are now available in a number of OECD countries. These types of broadband services provide two or more of the following services over a suitable speed single broadband connection:
- Internet access;
- a PSTN grade VoIP (voice over IP) calling service;
- real time video programmes (IPTV);
- WiFi based mobile to fixed network calls over compatible broadband enabled connections.
In the absence of an internationally recognised approach to benchmarking prices for multiplay broadband service packages the Ministry intends to progressively develop a suitable methodology to track New Zealand's progress in providing such services.
At present such packages are not generally available in New Zealand.
Leased Line Data Services Relative Performance
Leased lines, i.e. point-to-point data links with a specified data speed or committed bit rate, are used by a business centre, such as a bank processing centre, a head office or a supply warehouse, to link up with branch offices. These types of services are continuing to decline in importance with the development of cost effective IP packet switch network based services that can provide the required IP data transmission quality of service.
New Zealand's ranking in the OECD leased line baskets are summarised in the following table.
| OECD leased line data service baskets May 2006 |
% of OECD Average |
OECD ranking |
| 64 kbps |
137% |
22nd out of 25 |
| 2 Mbps |
60.8% |
6th out of 25 |
| Combined 64 kbps and 2 Mbps |
72.6% |
11th out of 25 |
These types of services are provided over legacy network assets and are now being progressively replaced by IP based technologies and associated services such as Telecom's One Office, an IP based VPN service that can provide point-to-multipoint data connectivity.
In the absence of an internationally recognised approach the Ministry intends to develop a satisfactory methodology for benchmarking the equivalent IP based point-to-multipoint data connectivity services, in conjunction with key stakeholders, and discontinue the use of this leased line data service benchmark.
Key Conclusions and Comments
Although there are some limited services on which New Zealand compares favourably with other OECD countries, in general there is a significant gap between New Zealand pricing performance and that of countries in the top half of the OECD.
Broadband service pricing developments and uptake continue to be mainly focused on services that have a maximum upstream speed of 128 kbps.
Advanced residential and small business user broadband telecommunications services with an extensive geographic coverage are becoming more widely available in a number of OECD countries.
At present advanced broadband service packages for residential and small business users are not generally available in New Zealand.
There is an ongoing need to benchmark New Zealand's performance relative to other OECD countries in delivering existing telecommunications services at cost based prices and promptly providing new and improved services. The nature and extent of future benchmark reporting by the Ministry has yet to be decided in view of the sector monitoring and reporting role that the Commerce Commission is required to undertake under the provisions of the Telecommunications Amendment Act (No 2) 2006.
A draft of this report was provided to Telecom, TelstraClear, Vodafone and TUANZ.
Telecom and Vodafone expressed a number of concerns, such as the use of OECD purchasing power parity exchange rates instead of some form of real exchange rates, the use of OECD cellular service usage baskets that differ significantly from New Zealand usage patterns, and the omission of international calls from the fixed PSTN services comparison basket.
The report takes into account their comments and includes a summary of their views.
Recommendation
It is recommended that this report be publicly released (excluding confidential information).
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