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3.1 Telecommunications Regulation

At the time that the telecommunications industry was restructured, the Government saw competition as the best regulator of telecommunications markets. Accordingly, it decided that there would be no statutory or regulatory barriers to competitive entry into telecommunications markets in New Zealand. Successive Governments since that time have reaffirmed this policy approach.

In order to maintain conditions of effective competition, the Government placed primary reliance on the Commerce Act 1986 (a general competition statute). In particular, reliance was placed on the sections of the act which deal with enforcement of statutory prohibitions against anticompetitive practices, including misuse of a dominant position in a market and the prohibition against business acquisitions which create or strengthen dominance.

Consumers' rights in the supply of telecommunications services are covered by the Fair Trading Act 1986 which prohibits certain conduct and practices in trade and provides for the disclosure of consumer information relating to the supply of goods and services.

The Government recognised that Telecom had a monopoly or was dominant in a number of telecommunications markets and that there was a need to protect consumers interests in such areas. This was achieved by placing particular provisions in Telecom's Articles of Association which have since been incorporated in Telecom's Constitution, in mid 1996, when it re-registered under the Companies Act 1993 and adopted a constitution.

The provisions (outlined below) can be viewed as a type of universal service obligation on Telecom; a price cap on residential telephone service tariff; and a requirement to include a local 'free-calling' option in its standard telephone service offering to residential customers.

Specifically, Telecom's Constitution requires it to:

• maintain a local free-calling option for all residential telephone customers;
• limit the rate of residential telephone rental price increases so that the pre-GST standard rental will not increase in real terms from that applying at November 1 1989. (Unless Telecom's profits are unreasonably impaired.) This is further defined to require that real price calculations be made using the All Groups Consumer Price Index (CPI), which is published by the Department of Statistics;
• ensure that the line rental for residential (telephone) users in rural areas be no higher than the standard residential (telephone) rental; and
• continue to make ordinary residential telephone service as widely available as at the date of adoption of the (Kiwi Share) Articles.

Telecom is required to limit the rise in standard residential telephone service rental (which by definition includes a 'local free-calling option') to less than or equal to the CPI from 1 November 1989 (except in the event that it considers that its profits are unreasonably impaired). In other words, residential rentals cannot be increased in real terms above the 1 November 1989 level of $27.80.

The Ministry of Commerce monitors and reports on compliance with these requirements which are known as the Kiwi Share Obligations. The Minister of Finance is the Kiwi Shareholder.

The 9 December 1991 Government policy statement on competition in telecommunications markets in New Zealand spelt out the general policy, supplementary measures and a reserved position, that if it was proved to be necessary, the Government would consider the introduction of other statutory measures or regulation. This policy thrust has recently been reaffirmed by the Minister of Communications.

The New Zealand Telecommunications Numbering Advisory Group (NZTNAG) which comprises telecommunications operators, users and the Ministry of Commerce, was established in December 1992 by the Minister of Communications to assist in the coordination of telecommunications numbering issues with the objectives of facilitating competition and improving benefits to users of telecommunications services in New Zealand. The NZTNAG has no particular powers and operates on a consensus basis. At present the main issues under discussion by the group are: technical arrangements for the introduction of 0800 service number portability and internetwork number portability (particularly telephone number portability); and the New Zealand telecommunications numbering plan including administration issues.

On 14 August 1995, the Government released a discussion paper on the regulation of access to vertically-integrated natural monopolies in New Zealand. The paper examined the issues arising from the experience with telecommunications interconnect negotiations in New Zealand and, in particular, the implications of the decision of the Privy Council in the case of Telecom Corporation v Clear Communications for the economic regulation of access issues in the telecommunications services industry and access issues in other vertically integrated natural monopolies in New Zealand.

The discussion paper identified three main issues that arise in the context of access via a competitor to a vertically integrated natural monopoly, in particular:

• the economically appropriate rule for pricing interconnection;
• the appropriate regulatory institution and process for defining the access pricing regime; and
• in telecommunications, if the Baumol-Willig pricing rule is inappropriate, the appropriate handling of the costs imposed upon Telecom via the Kiwi Share obligations.

Note: The Baumol-Willig pricing rule, sometimes known as the "efficient component pricing rule", requires that a supplier of a service such as interconnection be able to charge the full opportunity cost of profits foregone by supplying the service to a competitor, even if prices contain monopoly rent.

The Government issued a press statement on 26 June 1996 on the outcome of this review. The statement reaffirmed reliance on competition to achieve Government's objectives in telecommunications, warned against use of the Baumol-Willig rule in pricing interconnection, and stated its expectation that interconnection be provided, based on terms that promote efficiency and deliver the benefits of competition to consumers. This policy thrust was reaffirmed in March 1997 by the Minister of Communications.

Following the 1996 General Election and subsequent negotiations to form a Coalition Government, a Statement of General Direction in telecommunications policy was agreed by the Coalition partners as follows: "Amend Commerce Act to provide for penalties when actions are brought by parties other than the Commerce Commission. Our preference is for the Commerce Commission and the Ministry of Commerce to address competition issues. However, if this does not produce effective competition, Government must be prepared to ensure it does, firstly by producing Government Policy Guidelines on interconnection, transparency and number portability and if necessary by amending the Commerce Act."

3.2 Registered Network Operators

The Government introduced a special provision, Network Operator status, which provides the right to apply for a Court order to install telecommunications plant on public and private property. Some telecommunications service providers have found it useful to obtain this designation under the Telecommunications Act. It is emphasised that the designation is not in any way a pre-requisite, in some circumstances it may assist in installing plant.

The following list details telecommunications organisations which have such a designation. It should be noted that a number of broadcasting companies have also obtained this designation for possible use in the installation of buried cable TV plant.

Network Operators: Telecommunications Companies

(including broadcasting companies who plan to provide telecommunications services)

• Telecom Corporation of New Zealand Ltd (April 1989)
• Clear Communications Ltd (Nov 1990)
• BellSouth New Zealand (June 1991)
• Broadcast Communications Ltd (BCL) (Nov 1990)
• Saturn Communications (formerly Kiwi Cable) (June 1990)
• Trans Power New Zealand Ltd (August 1992)
• Tranz Rail Ltd (March 1993)
• New Zealand Post Ltd (May 1993)
• Capital Networks Holdings Limited (July 1996)
• Globalstar New Zealand Limited (April 1997)

3.3 International Call Service Registration

In order to provide international telephone call service a company must have a registered international operator status. Registration is not required for the provision of call back type service. Current registered international operators are: