9. Enforcement and Oversight
214. Enforcement and implementation of the Undertakings will be of critical importance and the Undertakings will need to incorporate both elements in sufficient detail where relevant. It will be important for Telecom NZ to display strong leadership to achieve the Undertakings and the Undertakings will need to recognise the importance of both incentives and counterfactuals to underpin the change process.
215. Section 69D(1)(h) of the Telecommunications Act requires that as part of the operational Separation Plan, Telecom must have:
Systems, procedures, and processes that require-
- compliance with the separation plan; and
- monitoring of, and reporting on, compliance with the separation plan by an independent oversight group that has a majority of members that are independent of Telecom; and
- the development of performance measures relating to compliance with the separation plan; and
- audit, and other checks, of compliance with the separation plan.
216. Once the operational Separation Plan has been approved and the undertakings come into effect, enforcement of the undertakings will primarily be undertaken by the Commerce Commission. The Act provides for the Commerce Commission to:
- enforce the undertakings either on its own initiative or where it has received a complaint;
- seek a High Court enforcement order or interim enforcement order if it appears that Telecom intends to engage, or is engaging or has engaged in conduct that constitutes, or would constitute, a breach of the terms of a separation undertaking.
217. In addition, service providers have direct enforcement rights against Telecom under Part 4A of the Act.
218. The following sections discuss the role and functions of the Independent Oversight Group (IOG), the relationship between the IOG and the Commerce Commission (the Commission), the appointment of the IOG, and other reporting and information requirements.
9.1 Independent Oversight Group (IOG)
219. Section 69D(1)(h) of the Act specifically requires "monitoring of, and reporting on, compliance with the separation plan by an independent oversight group that has a majority of members that are independent of Telecom".
220. The role of the Independent Oversight Group (IOG) in monitoring, reporting and advising Telecom on compliance with the undertakings is a key part of ensuring that the type of behaviour change intended by the operational separation will be achieved. The IOG will need to facilitate both external transparency and internal rigour within Telecom.
221. The effectiveness of this group is likely to reflect its:
- Makeup and resourcing.
- Governance arrangements.
- Frequency of reporting.
- Ability to investigate issues and complaints in its own right.
- Responsiveness to wholesale customer complaints.
- Ability to obtain all and any information it requires expediently.
- Relationship with the both the Regulator and the Telecom Board.
9.1.1 Functions of the IOG and Relationship with the Commission
222. It is intended that the Independent Oversight Group (IOG) will have a similar role to the "Equality of Access Board", which was established to monitor and report on BT's compliance with the BT Undertakings.
223. In the UK, the EAB is not an enforcement agency and it is not a management board. The EAB's role is to audit the operation of the business units of BT to ensure that processes and practices are consistent with BT's Undertakings. It has a support office that can investigate complaints from customers and business units about any matter that may be inconsistent with the letter and intent of the BT Undertakings. The EAB reports direct to the BT Group Plc Board and is a committee of the BT Group Plc Board. Its role is essentially one of "keeping BT honest" about the way in which it implements both the word and the spirit of the undertakings. The British regulator (Ofcom) has enforcement functions in relation to the BT Undertakings. It is understood that where these have been used it has largely been in response to matters that the EAB had identified and raised.
224. In New Zealand, it is proposed that the relationship between the Commission as the enforcement agency and the IOG should operate in a similar manner. The table below outlines their respective high level roles:
| IOG – independent oversight role |
Commerce Commission- Enforcement role |
- Monitoring, reporting and advising Telecom, the Commission and the public about compliance with the undertakings.
- Ultimately accountable to the Telecom Board, but is not a committee of the Telecom Board
- Will investigate customer complaints in the first instance Will not have enforcement powers but may recommend remedial action to the Telecom Board and will advise Commission accordingly
- Must report all non-trivial breaches to the Commission
- Supported by an IOG office which is sufficiently resourced by Telecom and has access to sufficient information within Telecom in order to provide independent research and assessment to the IOG
|
- Enforcement agency to ensure compliance with the undertakings.
- Existing investigative and enforcement functions are in no way constrained by the presence of the establishment and operation of the IOG, but will seek to avoid unnecessary duplication of compliance monitoring and reporting by the IOG
- Will meet regularly with the IOG on progress and delivery of the undertakings
|
225. The specific functions of the BT EAB include:
- Reviewing content of relevant Codes of Practice.
- Developing and reviewing BT's performance against Key Performance Indicators which relate to the Undertakings.
- Reviewing reports of the Equality of Access Office (EAO).
- Reviewing complaints regarding the undertakings.
- Initiating or requesting investigations by the EAO.
- Being kept informed of service level agreements set by Openreach and may call for reports on performance against them.
- Reviewing that supply of services internally to BT is in accordance with the Undertakings.
226. It is considered that the IOG will have a similar set of functions to the EAB. In order to perform these functions effectively, the IOG (and its support office) will need to be able to take an investigative role, including requesting information from Telecom and meeting with Telecom personnel.
227. Once undertakings have been finalised, striking the appropriate balance between the independent oversight by the IOG and the oversight and enforcement role of the Commission will depend on the effectiveness of the IOG and the willingness of Telecom to establish and build a robust and open relationships with both the IOG and the Commerce Commission.
228. The greater the degree of transparency and trust in the oversight process that Telecom demonstrates, the less need for the Commerce Commission to micro-manage compliance and less risk of enforcement action being taken to the High Court.
9.1.2 Establishment and Appointment of the IOG
229. It is proposed that the IOG shall:
- Comprise three or five members.
- Comprise a majority of members that are independent.
- Be chaired by one of the independent members. The Group will appoint the chair.
230. The IOG members shall be appointed by the Telecom Board. However, Telecom shall not appoint anyone employed within the following Telecom units: the ANS Unit; the Wholesale Unit; fixed network business units; or business units that provide retail functions. The IOG and its supporting office will be fully funded by Telecom.
231. Telecom will be required to consult/concur with the Commerce Commission over the appropriate skills mix for the group and the appointment of the independent members. Criteria for independent members will include that they have no material conflict of interest. In determining whether a conflict exists, regard shall be had to whether the person is:
- An employee or former employee of Telecom.
- A director or senior executive of another telecommunications provider.
- A partner or senior executive of any firm, company or other organisation providing services to Telecom or any other telecommunications provider.
- An employee of the Commerce Commission; or
- A material shareholder in Telecom or in any other telecommunications provider.
232. The Telecom Board will also be able to remove members of the IOG, provided that it first consults with the Commerce Commission.
9.2 Reporting and Transparency Requirements
233. Section 69D(1)(h) of the Act requires Telecom to put in place a number of systems, Key Performance Indicators (KPIs) and processes relating to compliance. It is envisaged that these would include:
- The IOG reporting regularly to the Telecom Board on compliance and progress towards delivery of the undertakings (pursuant to an agreed set of KPIs). Copies of these reports should be made available to the Commission and on the Telecom website.
- The IOG conducting an annual review of Telecom's compliance with the Undertakings in their entirety and which is audited by independent external auditors (under a duty of care to the Commission). This report shall be published on the Telecom website.
- The IOG reporting all non-trivial breaches to the Telecom Board and the Commerce Commission as soon as the IOG becomes aware of them. All breaches, including trivial breaches, would also be publicly reported in the IOG's annual review.
234. Additionally, Telecom should prepare Codes of Conduct for personnel. It is proposed that both the Codes of Conduct and KPIs would be developed by Telecom and the IOG, with the final versions being subject to approval by the IOG. The IOG will consult with the Commission before it finalises or changes the KPIs.
235. Telecom may from time to time be required to provide additional information to the Commission to demonstrate compliance on specific matters. In making such requests the Commission will have first considered any investigation the IOG has already have undertaken into the matter.
236. An important component of effective enforcement and oversight will be a high degree of transparency. In the UK accounting separation was already in place at the time the undertakings were developed. As a result there was a much higher level of transparency and symmetry of key information about BT's products and behaviour. In the New Zealand environment this level of transparency has yet to be developed to the same degree and there will be a hiatus between the adoption of the undertakings and the adoption of an accounting separation framework in accordance with the provisions of the Act.
237. The operational separation model will likely place some minimum requirements on Telecom in order to ensure transparency in relation to the supply of relevant services and transparency of the trading arrangements between the arms' length business units, including:
- Transfer pricing arrangements.
- Service level agreements between the separated units.
- Preparation of separate management accounts by the ANS Unit.
- A snapshot of Telecom's asset valuations and methodologies at the time the undertakings come into force.
9.3 Other Compliance Issues
238. It is proposed that a number of obligations to certify annual compliance will apply to certain people within Telecom. These were discussed under section 8 (Governance and Arms-Length Requirements).
239. The UK experience has also shown that in the implementation stage, issues arise that either were either not anticipated, unintended or require a more granular level of detail to effect. These may be significant, or alternatively, may be minor issues, which in a strict legal sense would be a technical breach. However, if they are not matters that are of sufficient scale and proportionality to necessitate a formal variation, it may not be contradictory to the intent of the undertakings. The UK experience suggests that it will be important that breaches are dealt with in a proportional way.
240. Dealing with them as an exemption or exception may therefore be warranted. Such exemptions or exceptions would not be an opportunity to renegotiate the individual terms of the undertakings or to litigate matters previously covered in the development of the undertakings. As the enforcement agency the Commerce Commission could develop processes to address these once the undertakings are signed. However, to facilitate day to day implementation, there may be merit in providing certainty and transparency by including them in the undertakings themselves.
241. It is also envisaged that the undertakings should make allowances for breaches that result from events beyond the control of Telecom such as civil defence and national emergencies
9.4 Discussion Questions: Enforcement and Oversight
Section 69D(1)(h) of the Telecommunications Act requires that as part of the Operational Separation Plan, Telecom must have:
Systems, procedures, and processes that require-
- compliance with the separation plan; and
- monitoring of, and reporting on, compliance with the separation plan by an independent oversight group that has a majority of members that are independent of Telecom; and
- The development of performance measures relating to compliance with the separation plan; and
- Audit, and other checks, of compliance with the separation plan.
Section 69R of the Telecommunications Act 2001 enables Commission on behalf of the crown to seek an enforcement order or interim enforcement order from the High Court if it appears that Telecom intends to engage, or is engaging, or has engaged, in conduct that constitutes, or would constitute, a breach of the terms of a separation undertaking.
The Commission also has powers under section 156O and 156P of the Act to investigate and enforce the separation undertakings on its own initiative whether or not it has received a complaint.
Key Questions
14. Do you have any comments on the proposed requirements for the IOG as described in section 9.1, in particular:
- Do you have any comments on whether the functions of the IOG and with the Commission as described in section 9.1.1 will strike an appropriate balance and be effective in facilitating compliance with the undertakings?
- Do you have any comments on the establishment and appointment of the IOG as described in section 9.1.2 will be effective in facilitating public and industry confidence in the IOG?
- Should the Commerce Commission have any role in approving appointees to the IOG, or should this role be limited to consultation?
15. Do you have any comments on whether the reporting and transparency requirements, as described in section 9.2, are likely to be effective in facilitating transparency and compliance with the undertakings?
16. Do you have any comments on the value of an explicit exemption or exceptions process for the Commerce Commission to deal with technical breaches and/or minor implementation issues as discussed in section 9.3 is necessary?
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