Review to provide certainty to consumers, industry

Communications and Information Technology Minister Amy Adams has today released a discussion document that formally begins a review of the telecommunications regulatory framework.

The Government announced in February that the review required under the Telecommunications Act 2001 would start this year.

The first phase of the review will focus on the fundamental relationship between pricing for the legacy copper network and pricing for the new fibre network during the transition period until 2020.

Ms Adams says New Zealand is in a unique transition period where the copper network remains available at the same time as a replacement network based on fibre-optic technology is being built, which will deliver significant gains in speed, capacity and reliability.

“In our view, the underlying approach to setting prices under the current framework based on replacement costs is sound. That is the access prices should be based on the forward-looking costs of a modern replacement network. This approach is consistent with international best practice.

“However, relying on overseas benchmarks and complex cost modelling to estimate these costs creates a high degree of uncertainty and may not be necessary.

“The discussion document comes to the preliminary conclusion that in the current period, the UFB tender process gives the best indicator of the cost of a replacement network. Therefore, the competitively-tested entry-level prices for fibre should be taken as a proxy for copper access prices set in a competitive market during the build period.”

Three options for change are outlined in the discussion document, without preference. All three options would deliver lower prices for copper-based services than is currently the case.

“This approach means consumers get the benefit of lower wholesale prices for their existing services in the short-term, and will also have access to the long-term benefits of replacing the copper network with a modern fibre network.

“Given the need to ensure certainty for consumers and investors during the transition, and to avoid undermining the significant investment being made in a replacement network, I am now seeking public feedback on the proposed changes to the pricing processes.”

As part of the first phase of the review, the Government is seeking initial feedback on issues to be considered in the remaining parts of the review.

It is intended that over time the review will be broad, extending to the entire regulatory framework.

The full review is intended to take account of market structure, technology developments and competitive conditions in the telecommunications industry, including the impact of fibre, copper wireless and other telecommunications network investment, all with a focus on the long-term interests of end-users.

The discussion document is available on the Ministry of Business, Innovation and Employment website at: http://www.med.govt.nz/telcoreview

Submissions close at 5pm on Friday 13 September 2013.