What does this package involve?
The package aims to do four things.
Firstly, it increases competition by giving all telecommunications providers access to Telecom's local loop, so they can offer their services and products direct to New Zealand homes and businesses.
Secondly, it puts forward measures to encourage investment in alternative infrastructure such as fibre, wireless and satellite networks.
Thirdly, it aims to future-proof the regulatory system so that ongoing major regulation is not required to keep up with what is a highly dynamic sector.
And finally, it builds on the work already done with the Digital Strategy to accelerate take-up of broadband and other services in rural areas and marginalised communities.
Why has the Government come up with this package?
In the Speech from the Throne, this Government highlighted the critical importance of telecommunications - and, in particular, broadband - to achieving New Zealand's economic transformation goals.
Currently, however, New Zealand is in the bottom third of OECD countries for broadband performance. That is not an acceptable or a sustainable position for a small, smart country to be in.
What is more, if New Zealand continues at its current rate of performance, it is unlikely it will ever catch up with other OECD countries.
This package includes a range of measures to help us lift our game and develop the sort of high-performing telecommunications services sector New Zealand needs if we're to be internationally competitive.
How does the package encourage investment in new technologies?
While the copper wire remains important - and is likely to be so for some time - this package quite specifically looks beyond copper wire, at how the Government can encourage investment in alternative and emerging technologies.
It does this in four ways. Firstly, it reviews public sector investment in telecommunications infrastructure. Secondly, it considers constraining Telecom's ability to reduce local prices solely in response to new competing infrastructure investment. Thirdly, it puts forward plans to develop a rural package, and an expansion of the Digital Strategy's broadband challenge. And finally, it ensures competitive access to spectrum for new wireless applications.
The package also aims to future-proof the whole regulatory system against what is a highly-dynamic sector by looking at a number of issues - including reviewing the Telecommunications Service Obligation (TSO), and looking at the desirability of separating Telecom.
Why has the Government decided to proceed with local loop unbundling?
The biggest single reason behind New Zealand's relatively poor broadband performance is a lack of effective competition in the New Zealand broadband market. And the key competition issue remains telecommunications companies' reliance on Telecom's fixed local loop network to deliver their services to New Zealand homes and businesses.
The decision not to unbundle in 2003, instead introducing a limited speed unbundled bitstream service, was subject to the expectation that an effective wholesale market would be developed that would address this central competition issue. That hasn't happened.
Expert advice and overseas evidence indicate that local loop unbundling (LLU) - along with other measures to encourage investment in alternative technologies - would help close the gap with other OECD countries on broadband uptake, price and quality. That is why the Government has decided to unbundle the local loop, while also providing incentives for telecommunications providers to look beyond copper wire to alternative infrastructure such as fibre, wireless and satellite networks.
Why is naked DSL included in the package? What the impact will be?
Naked DSL means that a customer can get a Digital Subscriber Line (DSL) broadband connection without having to rent a phone line as well.
In the past, DSL customers have also had to purchase traditional PSTN telephone service from Telecom or a Telecom reseller. Once a competitor obtains a determination from the Commission for UBS, they will be able to sell naked DSL to customers who do not wish to purchase a traditional telephone service.
Naked DSL is therefore likely to speed up the deployment of voice services which use internet technology (called Voice over Internet Protocol or VoIP) as a substitute for traditional telephone services. It also means customers can discontinue taking these traditional telephone services and instead use a DSL connection for voice calling. Finally, it gives Telecom's competitors the chance to offer more innovative retail services independently of fixed-line phone services.
When the limited speed unbundled bitstream service was introduced in 2003 on the recommendation of the Telecommunications Commissioner, it was intended that telecommunications providers could use this to offer naked DSL to customers. However, there was some legal uncertainty around this. Therefore, this package intends to clarify that the existing service can be used by telecommunications companies to provide naked DSL.
The Government is also altering the existing regulated service to remove the technical restrictions on service. In a fast moving industry like telecommunications, experience has shown that detailed restrictions placed in legislation soon become obsolete.
How will these proposals help the rural sector get better telecommunications services?
There are some really exciting things happening in the IT area in rural New Zealand. Many of the developments are by telecommunications companies using new and innovative technology. This package is designed to foster these developments.
In particular, the package's measures to encourage investment in alternative and emerging technologies such as wireless and satellite networks are good news for the rural sector, because these developments are likely to make it easier and cheaper to provide services to more remote locations in the long term.
However, the Government recognises that in some cases the market may need some stimulus in areas where it may not be economically viable to roll out broadband on a fully commercial basis. For that reason, we are developing a strategy for broadband in rural New Zealand.
This involves looking at the Telecommunications Services Obligations (TSO) agreement for local residential telephone service that relate to rural New Zealand, and it will also involve a review of public sector spending on telecommunications infrastructure, specifically focusing on the needs of rural New Zealand - building on Project Probe.
In addition, the Government will be investigating how an expansion of the Digital Strategy Broadband Challenge could further impact on providing access to rural and isolated New Zealanders.
Who was involved in the review?
The Minister of Communications publicly and personally invited interested parties to submit their views on the future of the telecommunications regulatory environment. As a result, officials conducting the review received input from a variety of stakeholders including telecommunications providers, user groups, and other organisations active in the sector.
Officials also sought technical input from a range of consultants.
When will all this come into effect?
The Government will aim to get the legislation through the House as quickly as we can, and then the changes will need to be implemented. But we expect to see this start taking effect in the market from 2007.
However, it should be noted that a number of telecommunications companies are already talking about increased investment over the next couple of years - which means we might start to see the benefits, and new, faster services for customers sooner than that.
What happens next?
In terms of the legislative changes needed to implement this package, the Government aims to introduce a Bill into the House around the middle of the year. That Bill will go through the usual process of examination by Select Committee, and there will be an opportunity then for people to make further submissions on the Bill.
The aim is to pass legislation by the end of the year. Then there will be a period where the Commerce Commission, as the implementing agency, determines the detail in some instances. We therefore expect to see these changes start taking effect in the market from 2007 onwards.
While this is all happening, there will also be some more work being done by officials - which has started already. This includes initiatives to future-proof the communications services market, and to encourage alternative infrastructure development. It also includes a review of "Kiwi Share" issues, and investigation of possible separation of Telecom. The Government will also be developing a package for the 2007/2008 Budget to help address the needs of remote and rural areas.
What does this mean for the Kiwi Share?
Officials will undertake further work on what changes are required to the TSO framework (including the "Kiwi Share" TSO for local telephone service). This review will consider possible changes to ensure the TSO arrangements going forward are compatible with market and technology trends, together with the regulatory changes planned as an outcome of the stocktake.
What does this mean for free local calling?
There are no plans at this stage to end free local calling. But, as part of the review of the TSO, the Government will be looking at how new ways of delivering telephone services might impact on this issue.
How does this all relate to decisions to regulate mobile termination rates?
That work is another important part of the Government's overall efforts to create a competitive telecommunications sector that delivers high quality services at reasonable cost to New Zealand homes and businesses.
The Commerce Commission recently reported to the Minister, who has called for submissions and is currently considering them prior to making a decision.