Questions and Answers
[ Last Updated 31 October 2005 ]
June 2004
Also available as: Section 64 Review and Schedule 3 Investigation into Unbundling the Local Loop Network and the Fixed Public Data Network: Questions and Answers [100 KB PDF]
Contents
Background
What is Broadband?
Broadband is a high-capacity high-speed, telecommunications service with a greater bandwidth (capacity) than a standard telephone call connection. Broadband access links, depending on the speed, can carry one or more services such as video, voice, and data simultaneously.
Broadband can be provided over telephone access lines by using a special electronic box (called a DSL modem or DSLAM). It can also be provided by wireless connection and over a fibre optic link. In practice, most broadband access links are provided by a DSL modem over a telephone line. This means that you can use the phone and the Internet at the same time. In effect, the wire to the home is split into two parts - one that is used to make telephone calls and the other part that is used to provide broadband services.
Downstream data speeds of 256kbps or greater and upstream data speeds of at least 128kbps are generally recognised as "Internet Grade" broadband. This compares to the maximum data speed on a dial-up connection (i.e. your phone line) of 56kbps.
What is Unbundling?
Unbundling would provide competitive suppliers with access to elements of Telecom's local loop network and allow them to use those elements to provide their own range of broadband and telephone services. There are a number of different forms of unbundling including full local loop unbundling (copper circuit access), line sharing, bitstream unbundling and fixed Public Data Network (PDN) unbundling.
What is Bitstream Unbundling?
Bitstream unbundling provides access to the bitstream (or data stream) on the network side of the DSLAM. Depending on the degree of bitstream unbundling required, access at this point could allow an entrant to request specific quality of service characteristics for each virtual circuit provided (i.e. data traffic stream), and to define and manage (via its own multi-service managed IP network) a range of retail broadband services. It should be noted that it is not wholesale provision of a retail service.
Put simply, bitstream allows entrants to provide their own broadband services via the incumbent's equipment (i.e. the incumbent's access line and DSLAMs).
What was the Commerce Commission asked to do?
Section 64 of the Telecommunications Act 2001 required the Commerce Commission to report to the Minister of Communications by December 2003 on whether or not the following services should be designated or specified (i.e. regulated) services:
- access to the unbundled elements of Telecom's local loop network;
- access to the unbundled elements of, and interconnection with, Telecom's fixed Public Data Network (PDN).
The Commission commenced an additional but related investigation in September 2003 under Schedule 3 of the Act into, amongst other things, the desirability of regulating access to:
- Telecom's main distribution frames;
- ancillary services which may need to accompany unbundling of the local loop network or the fixed PDN (including co-location and backhaul services).
What did the Commission's report recommend?
The Commerce Commission considered four forms of unbundling: full local loop unbundling or LLU (copper circuit access), line sharing, bitstream unbundling and fixed PDN unbundling.
Following careful consideration of the issues the Commission provided a final report to the Minister on 22 December 2003 that:
- recommended the designation of an unbundled fixed PDN service in the form of access to an "Internet grade" ADSL bitstream service and a "retail minus" pricing principle;
- recommended designation of access to a backhaul transmission service complementary to the designated ADSL bitstream access service and a TSLRIC pricing principle.
- did not recommend full unbundling of Telecom's local loop;
- did not recommend designation or specification of a partial private circuits service (for use in PDN access) but noted that should a satisfactory service not be introduced by Telecom within the next six months, the Commission considered it appropriate to re-evaluate the merits of regulated unbundling of a partial private circuits service at a long-run incremental cost price as an alternative means of addressing the access bottleneck in the fixed PDN.
What responsibilities and powers does the Minister of Communications have under the Telecommunications Act 2001, particularly in respect of the issue of unbundling?
The decision on whether to regulate telecommunications services under the Telecommunications Act 2001 is that of the Minister of Communications. In making his decision, the Minister was required to consider the section 18 purpose of the Act - to promote competition in telecommunications markets for the long-term benefit of end-users of telecommunications services within New Zealand - and make the decision that he considered best gives effect to this purpose. Under the Act the Minister of Communications may accept the Commission's recommendation(s), reject the Commission's recommendation(s), or require the Commission to reconsider its recommendation(s) for any reasons specified by the Minister.
What was the Minister's decision?
The Minister decided to accept the Commission's report as a whole (subject to the Commission resolving the wording of the draft designation). This will ensure the early introduction of a 128/256kbps Internet-grade unbundled bitstream service and an unbundled partial private circuit service, and thereby spur competition in basic broadband Internet access and in local access data circuits for business use.
What alternatives did the Minister consider besides accepting the report?
The Minister could have rejected the report - which would have meant the status quo continuing. Only Telecom sought this option.
The Minister could have asked the Commissioner to reconsider his recommendations. The Minister seriously considered this option but on balance decided that accepting his recommendations would ensure benefits for end users more promptly as opposed to the outcome under reconsideration where there would have been some delay.
The Minister could also in extreme circumstances have introduced new legislation to designate unbundling by amending the Act - in effect overruling the independent commissioner who has been appointed to investigate these issues and spent one year doing so. This option was never considered.
Why is it necessary to ask the Commission to resolve the wording of the draft bitstream unbundling designation?
The draft proposed wording needs a small revision to more correctly describe the proposed unbundled bitstream service.
Broadband
What are the unbundled services?
Two key unbundled services have been recommended and accepted. The "Internet grade" ADSL bitstream service will spur competition in broadband services for use by residential and business users, and the unbundled partial private circuit service will spur competition in data network services to corporate and larger business users. The Commission also recommended the designation of a backhaul transmission service to transport the unbundled bitstream to a point of interconnection with an access seeker's network.
What can a broadband communication link be used for?
Depending on the upstream/downstream speeds of the broadband link one or more broadband services can be delivered to a user. For example, a 128/256kbps link would support Internet access (on a best efforts basis which means that a high quality of service is not guaranteed) but would not support other "higher grade" broadband services such as voice over IP (Internet Protocol) or video conferencing. Higher speeds and quality of service characteristics (such as real time response) are required to support more demanding broadband services.
What do you mean by real time response rate?
If you are web browsing it doesn't matter too much if there is a short delay between receiving one page of a document and the next. If you are watching a video you do not want it to be jerky - you want it to be the same quality as you would get if you went to a video store. Getting the picture at the same time and rate that it is being played is "real time". Real time response rates require higher speed broadband.
Why is broadband so important?
Broadband is important because it will progressively provide the basis for delivering a range of new and improved telecommunication services for both residential and small to medium business users such as higher speed Internet browsing, enhanced voice services, video conferencing, and an enhanced range of value added services. Competition in broadband will drive prices down towards cost. Most OECD countries require some form of unbundling, including the US, Canada, UK and Australia, in particular to facilitate competition in the provision of high speed broadband services.
If broadband is so important why is the Government not doing more to unbundle the local loop now?
The Government has now moved to provide 128/256kbps Internet grade bitstream unbundling. If vigorous broadband service competition does not quickly develop, the Government will ask the Commerce Commission to further investigate the case for full local loop and more extensive bitstream unbundling.
What is 128(maximum)/256(minimum)kbps non-real time bitstream unbundling?
The (regulated) upstream data rate will be limited to 128kbps maximum and the downstream rate will be required to be not less than 256kbps (note - because the data channel will be shared with a number of other users, in practice the actual data rates will be less than this rate during busy periods). The bitstream will not be real-time capable.
What broadband services will 128/256 non-real-time ("Internet grade") bitstream unbundling support?
The Internet grade unbundled bitstream service will support web browsing, e-mail, on-line transactions and access to a remote local area network (LAN). Within the capability of the unbundled bitstream, service providers will be able to offer differentiated services by defining and managing broadband service offerings on their own networks.
Why is bitstream unbundling limited to 128/256kbps?
The Commission limited the speed of bitstream unbundling to 128kbps upstream to ensure that Telecom would have incentives to invest in building the core elements of its broadband network.
What is an unbundled partial private circuit?
This is a service that Telecom will provide to other service providers to enable them to extend the geographic reach of their existing data network services. The service will spur competition in the business public data network service market.
Why is full Local Loop unbundling not being considered now?
The Commission considered full LLU carefully. The cost benefit study estimated the (stand alone) net-benefits at $30M, but the Commission did not recommend full local loop unbundling because it considered that the size of the potential gains did not warrant intervention at this stage. The Commission noted that there is a substantial degree of uncertainty surrounding this form of intervention. The Commission also noted that "in a significant number of countries, the gains from local loop unbundling have been disappointing".
What does this decision mean to the average residential customer?
What this will mean for the average customer is they will get greater competition between suppliers of broadband services which is expected to lead to lower prices. In the immediate future it will mean competition for broadband that is limited to fast Internet, i.e. fast web browsing. Further out it will see competition extending to future broadband applications such as voice over Internet and real time video.
What does this decision mean to business telecommunication customers?
Similarly, this means that the average business customer will also get greater competition between suppliers of broadband services and public data network services that should lead to lower prices. In the immediate future it will mean competition for broadband based fast web browsing and local area network access. Further out I expect this to extend to a wide range of future broadband applications such as voice over Internet, video conferencing and integrated virtual private office services.
Decision Making Process
What additional information has been acquired since the Commission's report?
Telecom has significantly developed details of its UPPC offer (which will now largely be provided by a form of bitstream unbundling). Additionally, Telecom has made a number of statements regarding its intentions to invest in its next generation network (NGN), roll out advanced services supported by its NGN, and increase the unbundled 128/256kbps bitstream service beyond 256kbps downstream.
Why not ask the Commission to reconsider its decision?
Asking the Commission to reconsider its decision was likely to lead to some delay in implementing the present recommended forms of unbundling and there would have been some uncertainty about the outcome of the reconsideration process. The option to ask the Commission to investigate the case for further unbundling remains open to the Government. In the mean time we can get on and ensure that users benefit from implementing the Commission's recommendations. If we need to ask the Commission to further investigate unbundling there is likely to be greater certainty at that time about the need for further regulatory intervention.
International Issues
Some parties have expressed the view that should New Zealand not unbundle the local loop it will fall short of the commitments it has made in international trade agreements such as the WTO and CER
New Zealand fully meets its international obligations. Full unbundling of the local loop is not mandated by our commitments. Implementing the Commission's recommendation is a form of unbundling and will move New Zealand closer to other country's unbundling regimes, including Australia.
Addendum: Technical Issues
- ADSL
- ADSL (Asymmetric Digital Subscriber Line) is a common variant of xDSL technology that allows the use of copper wires to send high-speed data (e.g. high speed Internet service downloads) in a downstream direction and lower-speed data (e.g. uploading data to a Website) in the other. ADSL has proved to be very popular for residential users who generally spend most of their Internet time downloading information as opposed to uploading.
- Backhaul
- Backhaul refers to the transport of signals from a point of interconnect with a service provider to an access seeker's point of presence, often over a backbone network.
- Bitstream unbundling
- Bitstream unbundling, as opposed to local loop unbundling, provides access to the bitstream on the network side of the DSLAM. The difference between local loop unbundled access and bitstream based unbundled access is that the DSLAM will be installed and operated by Telecom.
- DSLAM
- A DSLAM (Digital Subscriber Line Access Multiplexer) is an electronic device typically located in the telephone exchange building that separates the voice telephone and broadband data signals and feeds them into the appropriate networks. The low frequency voice band signal on a copper wire is used for ordinary telephone service and the broadband data signal is typically used to provide high speed Internet service.
- LAN (Local Area Network)
- A data communications network covering a small area, usually within the confines of a building or floors within a building; a relatively high-speed computer communications network for in-building data transfer and applications.
- Local loop
- The local loop (network) is the line from a telephone customer's premises - usually a twisted pair of copper wires - to the telephone company's nearest local exchange. The local loop provides direct access to the customer for the provision of telecommunications services. 95% of Telecom's access lines are copper cables.
- Internet-grade
- Internet-grade is a term that is used to describe the quality of a particular digital connection. Internet connections use many shared resources that are provided on a "best efforts" basis. An Internet grade service with a speed of 128/256 is suitable for services requiring lower broadband speed and quality data, for example, email, web browsing and online transactions.
- Internet Protocol or IP
- The standard for sending the basic unit of data, called an IP datagram, through the Internet. Internet Protocol technology is a connectionless, packet based technology that can power the multi-service network in an efficient low-cost way.
- Retail-minus pricing
- Retail-minus pricing involves setting the price at the retail price less the avoidable costs (those costs that can be avoided by not providing a particular service). Retail-minus pricing allows the provider to earn a return on its investment that compensates it for risk and preserves incentives to invest.
- TSLRIC
- TSLRIC (Total Service Long-Run Incremental Cost) refers to a cost-based pricing methodology reflecting "forward-looking costs" of an efficient operator, comprising direct costs, the cost of capital, and a share of common costs.
- Virtual circuit
- A both-way connection between two devices that acts as though it's a direct connection between them even though it may use more than one real circuit configuration during a single period of communication. The term is used most frequently to describe connections between two terminal devices in a packet-switching network connection, for example and IP data network. In this case, the two devices can communicate as though they have a dedicated connection even though the packets.
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