Appendix 1

Telecom submitted in detail on this issue at both the Issues Paper stage (paras 321-326 of Telecom's response), the Draft Report stage (paras 109-134 of the main submission and sections 2.1 and 3.2 of Appendix 1 to Telecom's response) and at the Conference;⁵²

TelstraClear also submitted in detail on this point at the Draft Report stage: it submitted an entire Appendix (Annexure 5 of its response) discussing the application of the section 18 purpose statement to unbundling, and in its main submission, TelstraClear submitted in relation to efficiencies that:

... there is no requirement that these efficiencies be evaluated and quantified by way of a CBA. All that is required is that the Commission reach a view based on its judgment as an expert regulator.

Similarly, at the conference stage, TelstraClear presented a paper entitled "Legal Issues" on day five which included six pages on "The Commission's exercise of its discretion under section 64 of the Telecommunications Act 2001". It stated that (p2):

... the Commission by retaining and considering the OXERA CBA is both acting within its powers and clearly fulfilling the legal requirement that it considers efficiencies with respect to s18 of the Act.

Para 3.23 of the TCL Draft Report response)

The Commission gave this particular issue more than sufficient consideration in both its Draft and Final Reports. In the Draft Report, it considered it in Chapter 2 (and in particular, paras 102-106 and 133), and in the Final Report did so at both Chapter 2 (in particular paras 32-33) and Chapter 7 (which is entitled "Allocative, Productive and Dynamic Efficiency", and includes a section headed "Efficiencies Approach and Consumer Welfare"). Telecom considers these chapters prove the Commission well understood the role of efficiencies in the decision-making process. As to the validity of TelstraClear's 9 February 2004 submission on this point, Telecom notes the Commission's statement at para 33 of the Final Report;

The Act does not direct the Commission as to the weight that it should give to efficiencies, as opposed to other considerations. This is a matter for the Commission to consider.

Accordingly, not only has the Commission not misunderstood the role of efficiencies as TelstraClear claims, it has also considered this very issue thoroughly in the course of its investigation.

Telecom submitted a 110 page Appendix on the costs and benefits of unbundling in its response to the Draft Report, and followed this with 9 presentations totalling another 110 pages at the Conference.

TelstraClear submitted a 60 page appendix on costs and benefits, and presented 6 presentations at the Conference on them, accompanied by 191 pages of submissions. All of this was directed at the same argument as that raised by TelstraClear in its 9 February 2004 submission that the benefits of unbundling are larger than the Commission and OXERA estimate.

The Commission engaged OXERA Consulting (a UK firm) to advise on the costs and benefits of unbundling, and OXERA produced a 59 page report at the Draft Report stage, and a 67 page report at the Final Report stage. They were also present at the public conference, where they engaged in vigorous debate on the costs and benefits of unbundling with all presenters.

Given the detailed analysis undertaken of this issue, it is highly unlikely that anything new could be raised at this stage. This is confirmed by CRA's report (attached as Appendix 3), which shows that none of TelstraClear's or NECG's supposed "new" arguments are valid, or would significantly alter the results of the OXERA model.

Telecom submitted in detail at the Issues Paper stage on the current and future state of competition in the 13 markets identified by the Issues Paper, with and without unbundling (see section 10 of Telecom's response). At the Draft Report stage, it submitted an in-depth analysis of the likely state of competition in the absence of unbundling, which showed facilities-based competition emerging all over the country (see section 2 of Telecom's Response to the Commission's Draft Report). It also presented on this at the Conference (the presentations titled "Access Technology: Telecom's Next Generation Network and Data Access Technology" and "Access Competition in New Zealand").

TelstraClear also submitted at the Issues Paper stage on competition in the Commission's 13 markets (see 104-136 and 160-172 of TelstraClear's response). At the Draft Report stage, it submitted on what it saw as a lack of competition both now and in the future in the absence of unbundling at paras 1.7, 8.2, 2.22-2.25, 5.15-5.17, Chapter 6 (pp72-87), pp134-142 and in Annex 2. The thrust of these submissions was exactly the same as TelstraClear's present argument: that in the absence of TelstraClear-defined unbundling, Telecom will face limited or no competition in various different markets.

The Commission considered the level of competition now, in the factual future and in the counterfactual future in various markets throughout the investigation. In fact, the majority of both the Draft Report (chapters 4, 5 and 6) and the Final Report (Chapters 5 and 6) cover competition and the likely effects of unbundling/no unbundling on it.

Not only is it incorrect, therefore, to claim that the Commission has not had sufficient regard to a supposed continued Telecom "monopoly", but Telecom submits it is incorrect to claim that Telecom will have any monopoly in the future (see Telecom's submissions on this point in section F of the main body of this submission).

Telecom submitted at the Draft Report stage (at sections 3.1, 3.2 and 12.4 paras 744 - 750 and in Professor Hausman's report in Appendix 1 and at the public conference (see the presentation titled "Access Technology: Telecom's Next Generation Network", available on the Commission's website, and the restricted presentation entitled "Network Investment and the NGN" on the detrimental effects of such intrusive unbundling on Telecom's NGN. It also submitted in detail on the design and capabilities of Telecom's networks (including its current DSL assets and its planned NGN) - see sections 6.2 and 7 of Telecom's response to the Issues Paper, and section 6 of its response to the Draft Report.

TelstraClear first advocated unlimited regulated bitstream access in its Issues Paper response (see paras 96-99 and 186-227), where it set out in detail its preferred unbundling regime, and discussed the technical application of this regime to Telecom's networks. It also provided a 43 page report by AAS on the technical application of the various forms of unbundling to Telecom's networks.

At the Draft Report stage it devoted an entire chapter (chapter 5) to bitstream access, and another to "How TelstraClear Would Use Unbundling Access Services" (chapter 2. As TelstraClear admitted it would only use LLU to serve a very small number of end-users, this chapter focussed largely on how it would use business and internet grade bitstream access). At the Conference, it presented specifically on bitstream access, and on Telstra's experiences delivering it ("Delivery of unconditional Local Loop and Wholesale - DSL Products"). Throughout these submissions, TelstraClear stressed the importance to it of business grade bitstream access:

However, it is important to ensure that bitstream is defined in a way which ensures that the access seeker has sufficient control over the service to be able to differentiate its own product, that "Internet grade" and "business grade" bitstream services are provided and the access seeker can substitute the backhaul element if it is feasible to build its own network link to the exchange.⁵³

In both the Draft Report and the Final Report, the Commission described in clear detail its understanding of the technical configurations required to provide bitstream access, and asked at the Draft Report stage for comment on this (see pp 72 - 75 of the Draft Report for example). TelstraClear submitted in response that it "broadly agreed" with the Commission's description, (other than to stress the difference between business grade and internet grade bitstream access - see paras 8.24 - 8.28 of TelstraClear's response).

Again, TelstraClear's assertion is incorrect. The nature and importance (to TelstraClear) of business xDSL bitstream was stressed time and time again by it during the investigation, and similarly, the potentially large detrimental effects of a regulated business grade bitstream service for Telecom were also fully canvassed. The Commission considered the matter in detail. It cannot be said that the Commission has misunderstood something simply because it disagreed with TelstraClear's submissions.

Telecom in its response to the Issues Paper dedicated a large section to telecommunications regulation in other jurisdictions (paras 618-980) in which it provided evidence of the failure of local loop unbundling regulation. Telecom also submitted on this issue at the Draft Report stage (paras 25 and 26 and paras 893-906 of Telecom's response), the Final Report stage (paras 1, 2, 32 and 102-108 of Telecom's response) and at the public Conference.⁵⁴

As TelstraClear itself recognises, "[v]arious international evidence of the benefits of unbundling was provided to the Commission".⁵⁵ In its response to the Draft Report TelstraClear dedicated a chapter (Chapter 4) to international experience.

The Commission has drawn on international evidence throughout its investigation. The Issues Paper contained a section on international experience of regulation of Local Loop Unbundling and Public Data Networks (Chapter 7). Further, in the Draft Report (for example, at paras 34 and 35 and 690-739) and the Final Report (at paras (v) and (vi) and 539-571) the Commission demonstrates its consideration of international evidence and draws its own conclusions.

As submitted by TelstraClear in relation to efficiencies, "[a]ll that is required is that the Commission reach a view based on its judgment as an expert regulator".⁵⁶ The Commission in relation to efficiencies stated that:⁵⁷

The Act does not direct the Commission as to the weight that it should give to efficiencies, as opposed to other considerations. This is a matter for the Commission to consider.

Accordingly, it is for the Commission to determine how much regard to give international evidence. The Commission was provided with ample international evidence, and the conclusions that could be drawn from this evidence were extensively debated.

(a) put New Zealand in breach of its international obligations; and

(b) present a stumbling block to any future negotiations for bilateral trade agreements. Telecom will provide full submissions on these issues immediately upon the text of the Australian-US Free Trade Agreement becoming available.