4. Introduction
37. This consultation document seeks comment on the Ministry's preferred model for implementation of Telecom's operational separation as outlined in this document, upon which it is intended the Minister's Determination will be based.
38. This section outlines the background leading to the operational separation of Telecom and summarises the legislative process for finalising operational separation.
4.1 Background
39. In May 2006, the Government announced the outcomes of the Telecommunications Stocktake (the "Stocktake"). The Stocktake package (and the Telecommunications Amendment Bill 2006)5 aimed to improve competition in telecommunications markets for the long-term benefit of end-users by:
- Improving access at the wholesale level to the fixed local loop telecommunications network. In particular, by introducing Local Loop Unbundling (LLU) and amending the existing Unbundled Bitstream Service to remove the constraint on the upstream speed and clarify that it could be bought as "naked DSL".
- Improving the existing regulatory system by improving the speed, decisiveness and equity of outcomes.
- Improving transparency of Telecom's costs and pricing via the accounting separation of Telecom NZ.
- To address issues of rural telecommunications needs by developing a developing a package to address rural infrastructure issues and reviewing the Telecommunications Service Obligations (TSOs).
- Future-proofing the regulatory environment to technology change and market dynamics by enhancing the role of the Telecommunications Commissioner and empowering the Telecommunications Commissioner to undertake strategic reviews of sector performance.
- Stimulating efficient investment through enhanced competitive conditions.
40. In addition, the Government noted that "the operational or structural separation of Telecom were options that the Government was prepared to consider" in order to facilitate non-discrimination and equality of access to wholesale telecommunications markets. Cabinet also recommended that the Government encourage the Select Committee, charged with considering legislation implementing the Stocktake package, to additionally consider the need for further separation measures.
41. The Telecommunications Amendment Bill, which implemented the Stocktake decisions, was referred to the Finance and Expenditure Select Committee (FEC) on 29 June 2006. In parallel, Telecom announced that it intended to voluntarily separate its wholesale and retail operations with regard to fixed line services, and suggested that it could enter into some form of "legally binding undertaking" with the Government to this effect. The Government indicated that provided that a robust operational and accounting separation could be achieved, then full structural separation may not be required.
42. The FEC called for public submissions on the Bill and on the issue of separation on 11 August 2006. On 28 November 2006, the FEC reported an amended Bill to Parliament which included a new Part 2A of the Telecommunications Act that required the robust "three way" operational separation of Telecom.
43. The main features of the new Part 2A were that it:
- Provided for a robust (three way) operational separation of Telecom to achieve the purposes of Part 2A.
- Set out a process for the Minister of Communications and Telecom to settle a separation plan following public comments.
44. The Telecommunications Amendment Act (No.2) 2006 came into force on 22 December 2006.
4.2 Legislative Process for Operational Separation of Telecom
45. Part 2A of the Telecommunications Act 2001 provides a legislative mechanism for the Minister of Communications to approve binding and enforceable operational separation undertakings that form part of a separation plan that is submitted by Telecom. An overview of this process is set out in the diagram below.
Diagram 2: Summary of Process - Part 2A, Telecommunications Act 2001
→ Full size version of Diagram 2: [36 kB GIF]
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