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• TSO Review (2007)

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91. Competition in the supply of telephone access service to residential customers, based on the service provider's own infrastructure, is in general confined currently to the metropolitan areas of Wellington, Kapiti Coast and Christchurch. TelstraClear has stopped expanding the coverage of its access network for supplying residential services, and there does not seem to be any other providers planning to deploy infrastructure for such services, except for some wireless systems for a few local communities.

92. Vodafone is planning to launch a cellular radio based local telephone service later this year which is expected to have the potential to be a near equivalent to Telecom's copper cable based telephone service. There is also expected to be retail competition in local telephone service based on unbundled local loops. However, this is expected to be confined largely to urban areas.

5.1 Availability of Service

93. The Local Service TSO requires ordinary local residential telephone service be as widely available as it was in December 2001 when the Local Service TSO was established. The service is for analogue telephone access connecting a household with the Telecom public telephone network for the origination and termination of telephone calls.

94. The Local Service TSO makes specific reference to rural in Principle 3 of the TSO Deed:

"The line rental for local residential telephone service for Telecom residential customers in rural areas will be no higher than the standard residential rental and Telecom will continue to make local residential telephone service as widely available as it is at the commencement date" (December 2001).

95. There could be locations outside the TSO coverage area where a person is unable to procure a telephone connection from Telecom or another service provider. Although Telecom, as the Local Service TSO Provider, is required to make local service available only as widely as it was in 2001, Telecom has continued to make local service available outside this coverage, including in areas which would likely be classed as "commercially non-viable" under the TSO determination methodologies.

96. Telecom has charged for local service outside the TSO coverage area at the standard line rental, without any cost recovery from TSO subsidisation through the TSO charge. However, customers for such service typically make a significant contribution to the capital cost of establishing a new line connection to be supplied service.

97. TSO requirements for the ubiquity of local telephone service going forward needs to recognise the likely future competition within the local telephone service market, and whether there are sufficient commercial incentives to supply service in some low density areas.

5.2 Service Performance

98. The Local Service TSO specifies a number of measures for service performance which reference to a national average service standard. These measures address line connect speed for dial-up internet access, call connection, exchange availability and some other aspects of service quality.

99. Because of the national aggregation in the current way that service standards are applied and service performance is measured, there can be some (mainly high cost/low density) areas receiving poor service.

100. The TSO includes a number of quality measures that cover key aspects of residential user dial up Internet calls, voice calls, switch outage, and emergency service call answer. Quality measures in respect of the access circuit component of telephone service were monitored under a voluntary disclosure arrangement administered by the Ministry of Consumer Affairs. This arrangement was discontinued in 2003.

101. In view of the concerns about access infrastructure reinvestment levels there may be a case for including requirements for disclosure of access circuit quality indicators covering:

• urban area access network infrastructure fit for service quality;
• rural area access network infrastructure fit for service quality by region for:
  • access network;
  • regional backhaul;

102. The standard for assessing performance of any such indicators should be to international norms. It is likely that fit for service quality measures would be carried out by an access circuit test head that incorporates test features relevant to assessing the reliability of infrastructure performance parameters over time.

103. Concern has arisen that Telecom may not be able to guarantee the availability of NEAX switch capability to a standard in line with international norms, prior to it transferring all residential telephone service users to an NGN based voice call technology service platform. In view of this concern there may be a case for enhancing service quality measures in respect of switch infrastructure availability and increasing the penalty provisions covering any non performance.

104. In view of the concerns about investment levels in rural access and backhaul infrastructure there may be merit in requiring disclosure on a regional basis of aggregated renewal investment, including the assessed renewal component of growth related investments. Such a disclosure requirement would be best coordinated with relevant accounting disclosure requirements.

105. If universal minimum service standards were set for local service it is expected that Telecom, as Local Service TSO provider, would need to make investment to upgrade rural infrastructure so it could meet these standards. The cost for improving service standards would be reflected in the Local Service TSO charge.

5.3 Service Reporting

106. The Local Service TSO deed requires that Telecom (as Local Service TSO Provider) make certain information available to the Crown and Commerce Commission as evidence of compliance with service measures. This information is kept confidential and is not publicly disclosed.

107. As part of its determinations for calculating the Local Service TSO charge the Commerce Commission is required to make public some information under the Telecommunications Act as amended in 2006. This will make public information on the number of subscriptions for TSO local service, the geographic distribution of commercially non-viable customers and their TSO cost contribution – all at a relatively high level of aggregation.

108. Concerns have been expressed about the lack of transparency of information about TSO service demand. For example, providers who contribute to recovery of the net cost of the TSO have found it difficult to obtain information that would enable them to assess the viability of deploying infrastructure in so called commercially non-viable areas. At the public level, greater transparency would provider better information for an informed debate.

5.4 Convergence and Transitioning to NGN

109. TSO Local Service facilitates fixed telephone access for telephone calling (including fax and dial-up of Internet gateways operated by Internet Service Providers). The majority of this access connectivity is facilitated by copper cable circuits, with a small number of access lines facilitated purely by radio.

110. With analogue based telephone access, an individual circuit is dedicated to conveying calls to and from the access point for the telephone subscriber. However, digital (IP based) telephone access facilitated by Next Generation Networks (NGN) will instead be an identifiable data bitstream for conveying calls over a digital data circuit, which could also carry other types of data (such as text for fast internet access and video for television) at speeds greater than is necessary for telephony. In other words, in an NGN environment telephone access is simply another data bitstream flowing over a subscriber access line.

111. Telecommunications is migrating to NGN technologies because of the greater bandwidth flexibility and efficiency that can be achieved. As the TSO Provider for the Local Service TSO, Telecom is proposing a programme to convert telephone access lines to digital as part of its NGN plans. (Refer to Annex B).

112. Telecom plans to install a gateway terminating device to facilitate its NGN local telephone service. This device will be dependent on mains electricity in order to function, which is a major change from the current network. Consequently, without battery back-up or another way of supporting uninterruptible power to the device, there is the potential to lose telephone access (including the ability to make emergency calls) when there is a mains power outage. The Local Service TSO Deed as it stands does not require battery back-up or that a subscriber delivers electricity (by mains power or battery backup) as a condition to be supplied TSO local telephone service.

113. Telecom's planned NGN local service also includes replacement of dial-up internet access with a data bitstream equivalent on those subscriber copper access lines which are capable of supporting DSL broadband.