Speech to Telecommunications Carriers Forum

Speech notes from address to Telecommunications Carriers Forum, Silverdale, Hibiscus Coast, 12.30pm, 30 May 2008.

I would like to begin by acknowledging the considerable progress that has been made in the industry since the last TCF strategic planning session, and the invaluable role that the TCF has played in these achievements. 

Over the period 2002-2006, for a variety of reasons, the industry made little progress in developing effective codes to support regulated service supply.

The 2006 Telecommunications Amendment Act introduced a process for Standards Terms Determinations (STD) and refinements to the access code process to address regulatory deficiencies. These have fundamentally changed industry incentives.

With the STD process there is a clear role for the TCF and industry participants to address issues, and this role has been actively encouraged by the Commerce Commission resulting in the timely delivery of STD decisions.

The TCF has now made substantial progress in developing effective codes. It has got substantial runs on the board on issues such as:
• Local Loop Unbundling (LLU)
• Customer Complaints and Dispute Resolution
• Number Portability
• Customer Transfer Procedures
• Internet Service Provider Anti-Spam; and
• Mobile Premium Messaging Services.

The TCF is also actively working on or initiating work on other important issues such as:
• Sub-loop unbundling
• Emergency services
• The review of telecommunications number administration
• IP interconnection and
• The Local TSO review.

The next few years will be very important in establishing a competitive landscape to drive the timely delivery of cost effective and innovative broadband service. However, while the industry is to be applauded for progress made to date, there remains much work to be done – particularly with NGN and IP interconnect, and the TSO review.

Telecom's Operational Separation Undertakings in respect of IP interconnection provide a starting block for the telecommunications industry to actively progress adopting IP interconnection in an NGN service based environment.

I was pleased to hear that the TCF has recently established a Working Party on IP interconnection and will be actively supporting the Commission’s NGN study.

It is important that the TCF, the Commission and MED give consideration as to how the various requirements, commitments and studies in the NGN and IP interconnect area are going to coordinate with each other. I hope that this working party will facilitate such collaboration

Turning now to the TSO review, although steady progress is being made, I would like to emphasise the vital role that the industry must continue to play in this process.

I want to clearly signal at this point my intention to bring the policy review work to its conclusion in this term of government, indeed before the traditional pre-election hiatus in significant decision-making.

We are all in agreement that the current system requires fundamental review as it is not meeting the needs of either consumers or the industry. As such, the solution must be industry-friendly and must be supported by consumer representatives.

While issues around contestability and service standards are significant, it is also important to keep consumer concerns regarding pricing and network coverage in mind, as well as government concerns about transparency and investment, when constructing a revised TSO.

In seeking a durable solution, the government will consider the full range of policy and, if necessary, legislative tools at its disposal. I think that we would all agree it is preferable to have an agreed solution.

I am confident that a workable solution can be found that will result in improved service levels for consumers and increased industry efficiency. I am pleased that there is now greater momentum behind the TSO review and look forward to receiving the final TCF report in the coming weeks.

Some themes are already clear from feedback and consultation so far.

• The existing mechanism is perceived as clumsy, time consuming and difficult to administer
• The market (other than Telecom) generally perceive the TSO as a ‘tax on entry’, which operates in some respects contrary to the original policy intent
• Performance measures are aggregated and, while useful, could be improved with greater specificity of both inputs and outputs
• There is a strong desire to make TSO provision contestable (and technology neutral).

While there has been reluctance in some industry quarters to see the TSO upgraded to cover basic broadband, clearly this has been predicated on an expectation that a mechanism similar to the status quo would remain.

A key issue for discussion is whether, if a more fundamental review of the TSO was to result in something more reflective of the spirit of the original Kiwi Share, a ‘basic broadband’ component for rural New Zealand would have a role to play. Important considerations in that fundamental review discussion would be how such an approach might impact on implementing a contestability solution as proposed by the TCF or the ability to make future enhancements.

Telecom has recognised that significant pressure has built for reform. I welcome Telecom’s recent willingness to discuss commitments on:

• Spending all TSO local service compensation as new capex for Zone 4 rural areas (which are the focus for TSO subsidy funding)
• Openly and transparently accounting for future TSO compensation
• Agreeing a methodology to determine future TSO compensation
• Cooperating with the industry and officials to develop a specification and contestable model for supply of TSO local service going forward
• Leaving “no stone unturned” to develop innovative low-cost solutions to rural broadband deployment, including sharing facilities.

The Government has just announced a new rural broadband fund of $75m over five years to stimulate new open access investment in rural New Zealand. This will be open to all providers and technology and will have flexible, outcome based criteria.

This new Rural Broadband Fund, along with Telecom’s Operational Separation undertakings and fundamental review of the TSO, all form essential components of the Government’s rural broadband strategy.

I would now like to take this opportunity to speak to you about the Broadband Investment Fund and the Criteria that are currently out for consultation.

As you know, we are making available $250m for urban projects, $75m for rural, and $15m for international connections, as well as $160m+ for connectivity in health and education and around $10m for other new Digital Strategy initiatives.

Investment will not only be based on open access principles, but will require, as a minimum, the deployment and wholesaling of passive infrastructure in urban centres.

The widespread availability of ducting throughout urban centres and deep into surrounding suburbs, will improve investment incentives and substantially lower the costs of future investment for all operators (all operators can utilise infrastructure to provide fibre/wireless/DSL connections to end-users).

Importantly, it will lay the foundation for the subsequent deployment of FTTH within a decade, without adopting an overly prescriptive approach in such a dynamic industry.

The government will leverage private sector funding by providing grants rather than by equity funding or regulatory concessions. We considered providing an equity injection into a 'FibreCo' model, but ruled it out. The time delay and regulatory costs did not, in our view, pass muster.

The advice we have received from investors has been unanimous - no one will invest the billions of dollars necessary for a nationwide fibre-to-the-home roll-out in competition with the incumbent. The industry knows this; the government knows this; and Telecom knows this.

Unfortunately for users and competition in New Zealand, with Telecom's co-operation being a pre-requisite for such a nationwide solution, it is inevitable that the government of the day would be forced to agree to artificially-high wholesale prices to secure Telecom's co-operation.

The government has therefore ruled out both its own equity funding of broadband investment and adjusting Telecom access pricing - we recognise the value of broadband to the broader economy and so are making grants which do not seek a direct financial return on our investment.

The government will be promoting localised solutions that provide multiple providers with the opportunity to play to their strengths, build upon their existing networks, form partnerships and receive funding.

Through the use of grants and local solutions the government is able to incentivise investment in the passive infrastructure necessary to allow for subsequent network extensions by all providers.

The model will not unduly benefit one provider or introduce new forms of monopoly after the significant changes we have all made in creating a more competitive regulatory environment. End-users will determine the final connection they will receive.

The contestable fund will give all users and providers a chance to come together and offer innovative solutions. For example, the draft urban criteria do not require applicants to provide telecommunications services – something that many investors, lines companies and local councils considering ‘duct-only’ networks are likely to be very interested in examining.

You will have all seen the draft criteria by now, and workshops will be held in the near future to discuss them in more detail. At this time, however, I would like to bring up the issue of timeframes. The Government is committed to an application process that is fast, fair and user-friendly.

However, I need to note that our experience from the Broadband Challenge was that applicants would have preferred more time to prepare applications, and we do not wish to make the same mistakes as have been made in Australia, where they have recently had to extend their application period.

I am particularly interested in the perspective of suppliers on this issue, and whether you feel the proposed timeframes are appropriate for you to submit quality applications without unduly delaying the allocation of funds.

Thank you.