10. Rules and Processes of the TSO Framework
10.1 Allocation of TSO Charges
243. An annual TSO charge is assessed for each TSO instrument. Currently the TSO charge for every TSO instrument is recovered through a levy on each liable telecommunications service provider in relation to their share of total industry sales revenue for telecommunication services that relay on a PSTN.24
244. The definition of a liable telecommunications service provider currently applied is not sufficiently technology neutral to robustly recognise the increasing range of services and services will be facilitated going forward using next generation "carrier" networks and the Internet. The associated definition of qualifying revenue for measuring the size of TSO liability is also not sufficiently technology neutral in this respect.
245. Possible alternatives for allocating TSO charges include:
- Allocating to New Zealand service providers based on their trading revenue for the supply of all telecommunications services;
- Allocating to New Zealand service providers based only on their trading revenue for the supply of any retail telephone access services or retail data access services;
- Allocating to New Zealand service providers based on their individual share of total subscriber line connections (by copper cable, radio or other means) for telephone access and data access.
246. All of these options could potentially cover far more service providers than are currently liable to pay TSO levies, and would likely include a large number of small service providers. The administrative transaction cost for applying TSO levies to such providers is expected to outweigh the levy amount collected for many of these providers. Any of these options outlines could therefore be complemented by a threshold so small service providers would be exempt from paying TSO levies.
10.2 Responsibility for TSO Charge Determination
247. The Commerce Commission currently determines both the quantum of any TSO charge and the distribution of any such charge among liable service providers. Calculation of the TSO charge for a specified amount TSO is a straight forward process which does not involve the Commission setting rate values for TSO charge elements.
248. The TSO determination process is now split into two process responsibilities, one for calculating the TSO Charge and another for allocating the charge over the industry. Responsibility for calculating TSO charges of specified amount could potentially be removed from the Commission and shifted to a private sector finance services business (e.g. accounting, auditing or corporate trustee). Equally, responsibility for allocating TSO charges over the industry could be separated in this way.
249. This would enable Commission scarce regulatory resources to be freed from formulaic work and kept focused on
"pure" regulatory work requiring decisions to be made which balance differing demands for meeting the regulatory goal.
250. A trust fund could be operated which would:
- bill liable service providers and collect contributions from each provider
- pay out TSO charges to TSO providers
- obtain insurance for payment default by service providers to guarantee payment of full TSO charges when due to the respective TSO providers
Responsibility for TSO Change Determination
10a. Should the Commerce Commission retain responsibility for calculating the TSO charges for TSO instruments containing charging rates of specified amount?
10b. What type of organisations should be considered to perform such a role going forward?
10c. Should responsibility for making TSO determinations which calculate TSO charges of specified amount be separated from the Commerce Commission?
10d. Should responsibility for allocating TSO charges over the industry be separated from the Commerce Commission?
10e. Does a trust fund arrangement have merit? Who would be appropriate to operate such a trust fund?
10.3 Payment of TSO Levies by Liable Persons
251. TSO industry levies for recovering TSO charges are currently applied on an annual basis with payment by liable service providers in a single lump sum after the final TSO determination for the respective TSO instrument is released. This means a TSO Provider does not receive any TSO levy payments from liable service providers until at least nine months after the end of the financial year for the respective TSO charge. Although the TSO provider is compensated for the time value of money for an outstanding TSO charge over this period through an interest surcharge, this arrangement is not conducive to good budgeting and cash flow management practice for the TSO Provider.
252. To reduce the impact of the lag between year end and the final TSO determination applicable for that year, liable service providers could be required to make interim TSO levy payments. These could be monthly or quarterly instalments for their expected share of a TSO charge, pending the final TSO determination for the year, with the amount of each instalment set based on the TSO determination for the previous year.
Payment of TSO Levies by Liable Persons
10f. Should an interim TSO levy be applied for compensating TSO Providers in advance of reconciliation and final payments?
10g. Should such an interim payment arrangement for TSO levies be on a similar basis to the industry levy for recovering the Commerce Commission telecommunications regulatory cost?
10.4 Extension, Expiry and Review of TSO Instruments
253. The TSO rules do not require that a TSO instrument be for a particular set duration or be reviewed after a certain period. The Local Service TSO has no expiry date and continues until both parties agree to terminate. The Relay Service TSO is for a three year term with the Crown having the right to extend for another two years.
254. There is merit in having a regular scheduled review of arrangements in a TSO instrument when extensions or additional terms are being considered so any process issues can be addressed.
Extension, Expiry and Review of TSO Instruments
10h. Should a standard practice apply for extending the duration of TSO instruments?
10i. Should TSO instruments automatically expire after a specific period?
10j. How frequently should TSO instruments be reviewed?
10.5 Accountability for Local Service TSO Compliance
255. The Local Service TSO has been agreed between the Crown and the Telecom Group of companies through a deed with Telecom Corporation of New Zealand and Telecom New Zealand Limited. Under operational separation, each Telecom business unit shall have some autonomy and limited ability to procure resource allocations and performance by other business units because of "line of business restrictions". Where accountability lies for TSO compliance has to recognise these changes and balance practicalities.
256. The governance arrangements for TSO compliance also have to address the current lack of transparency of Telecom performance across some key input and output parameters. There is considered to be a need to include actual investment, and depreciation of, the Telecom access network as an area of the key performance indicators to be reported on by Telecom with information disclosure publicly.
257. Telecom corporate governance arrangements for TSO compliance needs to be considered in the context of developing the Determination and Undertakings for Operational Separation. These could potentially differ between legacy TSO requirements and new TSO requirements depending on the revised scope for the Local Service TSO.
258. The working assumption has been that the corporate centre of the Telecom Group would hold accountability for all TSO requirements (as TSO provider and as TSO liable person), and would have the discretion to devolve responsibility within the group as appropriate for particular requirements. There are several TSO functions Telecom must perform including:
- As TSO Provider for legacy TSOs:
- ensuring supply of service in accordance with specified TSO requirements
- relationship management with the Crown and Commerce Commission
- compliance monitoring, reporting and collecting TSO levy.
- As TSO Liable Person for legacy and new TSOs:
- providing service and revenue information to Commerce Commission
- paying TSO levies for Telecom Group
- As bidder to become TSO Provider for new TSOs
- ensuring supply of service in accordance with specified TSO requirements
- relationship management with the Crown and Commerce Commission
- compliance monitoring, reporting and collecting TSO levy
Accountability for Local Service TSO Compliance
10k. Should a single organisational unit of Telecom have accountability for all TSO functions? What Telecom business unit should this be?
10l. How should responsibility for the various TSO functions identified be allocated across the Telecom Group?
10m. How should costs and revenues for TSO service requirements, which Telecom fulfils as TSO Provider, be allocated across the Telecom Group?
10n. How should the cost of TSO levies paid by the Telecom Group be allocated across Telecom business units?
10.6 Standard TSO Instruments
259. It could be desirable to meet particular TSO service requirements through appointing multiple TSO Providers, each assigned a particular geographic territory, and applying the same TSO terms and conditions. This approach could potentially be adopted where contestability is to be applied for selecting a TSO Provider. However, unless a standard TSO instrument can apply to several TSO providers, and these can collectively be the subject of which a single TSO determination covering all the TSO Providers, applying common terms and conditions could be administratively cumbersome.
Standard TSO Instruments
10o. Should provision be made in the TSO regulatory framework for establishing a "Standard TSO Instrument" to save multiple determinations against the same general TSO terms and conditions
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