2. Introduction
2.1 Background
24. The original Kiwi Share requirements for local residential telephone service form part of Telecom's company constitution, and are enforceable by the Crown as the holder of the Kiwi Share. A profile explaining the Kiwi Share Obligations is presented in Annex A.
25. The Telecommunications Service Obligations (TSO) regulatory framework was established by the Telecommunications Act 2001.
26. An updated version of the Kiwi Share telephone service requirements was agreed in 2001, entitled "Telecommunications Service Obligations Deed for Local Residential Telephone Service" (Local Service TSO). This agreement was deemed a TSO instrument by the Telecommunications Act 2001.
27. The Local Service TSO requires that Telecom make available price-capped local residential phone service. The Local TSO contains principles requiring that:
- the option of charge free local calling must be offered as part of ordinary local residential telephone service;
- the standard line rental for local residential telephone service must not increase in real terms, provided that the overall profitability of Telecom's fixed business is not unreasonably impaired;
- the line rental applied by Telecom for ordinary telephone service in rural areas must not be higher than the line rental applied by Telecom for the service in urban areas;
- local residential telephone service must be as widely available as it was at December 2001;
- emergency call service and a single standard telephone directory listing must be available free of charge as part of local residential voice telephone service;
- directory assistance service must be available with no charging increase in real terms.
2.2 The Need for a TSO Review
28. The Government's 2006 Telecommunications Stocktake recognised the need to improve broadband speeds and availability across New Zealand, including rural areas. The Stocktake identified that accessibility of broadband services for users in rural areas could be adversely impacted by the regulatory reforms.
29. As part of the Telecommunications Stocktake announced in May 2006, the Telecommunications Act introduced a number of new measures to spur competition and investment in New Zealand's broadband infrastructure. They include:
- The unbundling of the copper local loop, freeing up this critical bottleneck resource to enable a greater range and diversity of services to be provided;
- A widening of the definition of the regulated bitstream service enabling a greater range of advanced bitstream services to be provided to the industry, including "naked DSL";
- Introducing a Standard Terms Determination process to provide for the consistent and timely provision of regulated services to all service providers;
- More rigorous and expeditious enforcement measures that will improve the overall integrity of the regime;
- The operational separation of Telecom, to provide a level playing field for all industry participants;
- Other measures regarding spectrum policy and further development of a rural telecommunications strategy.
30. The TSO review was signalled as one of a range of initiatives required to future-proof the regulatory regime to market developments and technology change. In particular, the Local TSO needs to be reviewed to reflect changing expectations for telecommunications access services and to ensure users more promptly benefit from technology enhancements. Essentially to ensure the TSO remains relevant in a rapidly changing technological environment.
31. This discussion paper canvasses a number of issues relating to the Local TSO, and seeks the opinions of telecommunications carriers, resellers, Internet Service Providers (ISPs) and other stakeholders on the merits or otherwise of making certain changes. Rural broadband is considered in the context of the TSO framework, as a precursor to the Government's development of wider rural broadband strategy.
2.3 TSO Review Terms of Reference
2.3.1 Scope and Objectives
32. The primary objective of the review is to consider improvements to the TSO framework in the interests of telecommunications consumers in New Zealand. This includes assessing the effectiveness of the Local Service TSO.
33. The main areas that the TSO review will focus on are the:
- TSO requirements for the supply of telephone and Internet access services;
- TSO role in the supply of emergency call services;
- TSO role in the supply of rural broadband services; and
- Rules for the application of TSO levies on the industry to recover charges for services supplied under TSO instruments.
2.3.2 Issues for Consideration
34. Specific matters that the Review will examine include:
- Whether the Local Service TSO is achieving the objectives for this TSO instrument, and the wider objectives of the TSO framework and telecommunications regulatory regime;
- The impacts of market competition on the economic sustainability of the existing Local Service TSO requirements;
- The impact of the Local Service TSO on the infrastructure investment incentives of alternative service providers;
- Whether TSO supply of telephone and Internet access services should be made contestable;
- Service availability requirements and the feasibility of appointing multiple TSO providers for the supply of TSO local telephone service;
- The extent and form of TSO subsidisation for local telephone services and user eligibility for subsidised service;
- The need for continued price control of local telephone service, the method of price control and the enforcement mechanism for price control going forward;
- Issues and options around compensation to Telecom for the supply of services under the Local Service TSO;
- Potential changes to the services specified for supply under the Local service TSO to recognise the industry transition to Internet Protocol (IP) technologies;
- The suitability of existing TSO service performance standards and measures in an IP next generation network technology environment; and
- Whether to include rural broadband Internet access in the range of TSO services.
35. The Government is committed to preserving the basic right of New Zealand's residential customers to free local calling. This review is predicated on retaining this fundamental entitlement, while considering the changes required to improve the supply of service within a next generation network (NGN) environment.
2.3.3 Interrelationships
36. The TSO review shall be mutually supportive of the objectives for other areas of policy study and review which impact on the TSO framework, including:
Digital Strategy (including the Broadband Challenge)
37. The TSO framework should complement the vision for digital connectivity, content and confidence, with an emphasis on supporting the goal of extending the reach of broadband.
Rural Broadband Strategy
38. The strategy is based on identifying gaps in the availability of broadband services for rural areas and solutions to closing these gaps. Increased rural infrastructure investment is likely to be required to address gaps. A TSO is a possible mechanism that could be used to address shortfalls in the coverage of broadband networks. Should under investment in rural area infrastructure by the TSO provider be an issue, other means of addressing the shortfall may need to be considered.
Operational Separation Undertakings
39. Implementation of separating the Telecom business organisationally for meeting transparency and non-discrimination goals to facilitate competition may necessitate consideration of splitting TSO requirements across particular Telecom business units.
Emergency Telecommunications Services Strategy
40. The government strategy under development for public safety telecommunications by the inter-agency ETS committee will provide guidance and direction for the future mode of operation for the supply of emergency call services.
2.4 Reader Guide
41. This discussion document is written primarily for industry stakeholders who are familiar with the basic regulatory and technology concepts applicable for the telecommunications sector in New Zealand. Below is a guide to each of the sections which identifies the key aspects.
42. Questions are included in each of the sections to highlight the key issues which need to be addressed. Submitters are invited to address areas of interest and are not expected to provide responses to all questions.
2.4.1 Section 3 – The TSO Framework
43. This section provides an overview of the TSO framework, considers how effective the TSO framework has been in achieving the Government's telecommunications objectives.
2.4.2 Section 4 – Purpose and Market Impact of the Local Service TSO
44. It is argued by some that the Local TSO is an impediment to competitive entry by alternative service providers. This section queries whether there may be a better way of ensuring universal availability and affordability of local residential telephone service.
2.4.3 Section 5 – Standards for TSO Local Service
45. This section looks at whether the current Local Service TSO requirements should be retained, and if so, how they should be updated to take into consideration the changing telecommunications environment, for example Telecom's transition to an NGN network.
2.4.4 Section 6 – Compensation for the Local Service TSO Provider
46. Concerns have been expressed that the level of compensation made to Telecom as TSO Provider does not reflect the dynamic market economics for supplying local telephone service. This section canvasses the options of either staying with the current "unspecified" TSO charge, or moving to a "specified" charge that would be mutually agreed between the Crown and Telecom. It also raises the option of linking compensation to investment.
2.4.5 Section 7 – Eligibility and Charging for TSO Local Service
47. This section considers eligibility for TSO local telephone service together with various pricing issues such as revising the price cap, price balancing, de-averaging and wholesale services.
2.4.6 Section 8 – TSO Local Service and Emergency Call Service
48. Telecom is presently the "gatekeeper" for emergency calls in New Zealand. The TSO review is addressing emergency call service requirements to the extent that these should be included in a revised Local Service TSO.
2.4.7 Section 9 – TSO Requirements for Subscriber Access Connectivity
49. In order to improve broadband availability and speeds, New Zealand will have to make significant investments in the roll-out of fibre deeper into the local access network to shorten the copper local loop access networks, and/or investments in deploying radio based access systems. This section includes discussion on rural broadband capability.
50. This section also examines whether the TSO has a role in improving broadband connectivity and outlines some suggested guiding design principles for TSO instruments to address the telecommunications connectivity needs of New Zealand households.
2.4.8 Section 10 – Rules and Processes of the TSO Framework
51. Outlines various issues relating to the ongoing administration of the TSO framework.
2.4.9 Annex A – Profile of the Kiwi Share Obligations
52. This annex provides a description of the Kiwi Share Obligations in relation to the Local Service TSO.
2.4.10 Annex B – Telecom Document
53. This document explains how an NGN-based local service network will differ from the current analogue telephone service network.
2.4.11 Annex C – Broadband Applications and User Access Speed
54. This annex provides background information on trends in users broadband requirements.
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