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• 4. Purpose

• Telecommunications

• TSO (service obligations)

• TSO Review (2007)

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• Discussion Document
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83. The original Kiwi Share service requirements on which the Local Service TSO is based were established as a consumer protection because of the lack of competition in the relevant telecommunications markets.

84. The Local Service TSO directs three basic aspects of local telephone service:

• the availability of local telephone service to residential users;
• the quality of local telephone service to residential users; and
• the affordability of local telephone service to residential users.

85. The Local Service TSO requires that Telecom continues to make residential local telephone service as widely available as it was at December 2001 when the Local Service TSO Deed commenced.

86. The Government has maintained the principle of toll free local calling for residential users as part of the TSO. The implicit affordability goal of the Local Service TSO is to keep the price for telephone service generally affordable irrespective of the remoteness or population density of where a household resides. It does this by having a standard price which effectively offsets high cost areas against low cost areas for the supply of local telephone service.

87. A set of service performance measures are included in the TSO requirements to ensure the quality of local telephone service is satisfactory. These require the TSO Provider meet service standards for various aspects of service. Without such measures there is a risk that service in some areas could degrade due to the lack of competition in the supply of local service.

88. A lack of effective competition for the supply local telephone service in most rural areas is expected to persist in the foreseeable future. Without sufficient competition to control market power, telecommunications users could be vulnerable to Telecom ceasing to make local service available or raising the price dramatically for some customers in commercially non-viable areas.

89. It is argued by some that the Local Service TSO is an impediment to competitive entry by alternative service providers into the local service market. Where prices are kept artificially low and below cost by the Local Service TSO, this does make market entry less attractive where the standard line rental for TSO local service is below full cost recovery. However, this detrimental impact could be alleviated, and ultimately eliminated, without discarding the Local Service TSO by stepping up the rate of price rebalancing so that the supply of service in all areas becomes commercially viable.

90. Whether there is a need to keep a "universal provider" for telephone service depends on the extent of alternative service supply and competitive entry. It may be that in some areas the investment yields, though strictly commercially viable, might not be enough to warrant continued investment and service provider interest in making service available.