Tuesday, 18 December 2001 Media Statement

Government announces updated Kiwi Share obligation

The Government has entered into an arrangement to update Telecom’s Kiwi Share obligations, giving effect to the Government’s policy decisions announced in December last year.

Communications Minister Paul Swain says the updated Kiwi Share will improve access to basic telecommunications for New Zealanders.

“The original Kiwi Share obligations were implemented over a decade ago,” Paul Swain said.

“The Government considered it appropriate to revisit the Kiwi Share to ensure it remains relevant in today’s context.”

“The updated Kiwi Share:

- Clarifies that free local calls includes standard calls to the Internet and fax calls;

- Brings basic Internet access to virtually all New Zealanders by upgrading Telecom’s network to provide 9.6kbps data capability to 99% and 14.4 kbps to 95% of existing lines over the next two years (Telecom will fund the capital cost of this upgrade) while maintaining existing kbps data capability if higher than 9.6kbps or 14.4 kbps;

- Extends network coverage obligations to current levels; and

- Requires Telecom to meet detailed service quality measures and report to the Crown and the Telecommunications Commissioner. The service quality measures cover Telecom’s performance, including dial tone availability and 111 performance.

“The update will ensure that more people are able to obtain basic Internet access, which is an important foundation for the development of the knowledge economy in New Zealand.

“The updated Kiwi Share is an important step forward in ensuring that New Zealanders have access to the telecommunications services they need to participate fully in the information society.

“The Government welcomes the commitment from Telecom to this agreement,” Paul Swain said.

A copy of the updated Kiwi Share Deed is available from www.med.govt.nz

Updated Kiwi Share Obligation - Questions and Answers

What is the Kiwi Share obligation (Kiwi Share)?

The Kiwi Share is essentially a contractual agreement between the Crown and Telecom that enables the Government to meet its social objectives in telecommunications. The Kiwi Share was established when Telecom was privatised in 1990.

The 1990 Kiwi Share required Telecom to:

- Maintain a local free calling option for ordinary residential telephone service;

- Charge no more than the standard residential rental for ordinary residential telephone service; and

- Continue to make ordinary residential telephone service as widely available as at 1 November 1989.

Why is it necessary to update the Kiwi Share?

The original Kiwi Share obligations were implemented over a decade ago. The telecommunications environment has changed since then. The obligations needed updating to ensure they remain relevant in today’s context.

Basic access to data services is an important foundation of the knowledge economy. The updated Kiwi Share will help that virtually all New Zealanders are able to access basic Internet services.

The updated Kiwi Share:

- Clarifies that free local calls include standard calls to the Internet and fax calls;

- Brings basic Internet access to virtually all New Zealanders by upgrading Telecom’s network to provide 9.6kbps data capability to 99% and 14.4 kbps to 95% of existing lines over the next two years (Telecom to bear the capital cost of this upgrade) while maintaining existing kbps data capability if higher than 9.6kbps or 14.4 kbps;

- Extends network coverage obligation to current levels; and

- Requires Telecom to meet detailed service quality measures and report to the Crown and the Telecommunications Commissioner. The service quality measures include Telecom’s performance, including 111 performance and dial tone availability.

What is covered by free local calls?

Free local calls include:

- Standard voice calls;

- Single standard listing in The Telephone Book;

- One residential line;

- Free genuine calls to emergency service centres;

- Fax calls; and

- Standard calls to the Internet.

How does the updated Kiwi Share work?

The updated Kiwi Share (contained in a Deed between the Crown and Telecom) sets out provisions that operate in place of, and in addition to, clause 5 of the existing Kiwi Share provisions in Telecom’s constitution. Clause 5 of Telecom’s constitution contains the Kiwi Share obligation concerning the supply of telephone service.

The updated Kiwi Share will be deemed to be a Telecommunications Service Obligation (TSO) instrument in terms of the new Telecommunications Act. Clause 5 of the existing Kiwi Share will continue to be in Telecom’s constitution but will not operate while the updated Kiwi Share is in place. A TSO reflects Government social policy objectives. Under the new Telecommunications Act, all telecommunications service providers are required to contribute to the costs of the TSO, and a cost calculation and a monitoring and enforcement regime is undertaken by the Telecommunications Commissioner.

How many people will benefit and how much will it cost?

The upgrade will enable basic Internet access for some 22,000 of the 35,000 lines that currently are not able to obtain access (out of a total of about 1,350,000 residential lines).

The capital cost of upgrading the network to the required standard is estimated at about $100 million. This capital cost will be funded by Telecom, with industry contributing to its share of any ongoing net operating costs under the funding arrangements for the Kiwi Share. These costs will be determined by the Telecommunications Commissioner under the new Telecommunications Act.

Why has the new Kiwi Share data standard been set at 9.6 and 14.4 kilobits per second?

9.6 kbps is considered to be the minimum current level of capability required for the return line for satellite-based Internet download services. Satellite services have the potential to provide a much better Internet access solution in outlying rural areas than reliance on copper wires, and which will be available over the whole of New Zealand.

While it would be possible to mandate a higher level of data capability, the Government set the specified levels having regard to incentives for investment and the cost of mandating a higher level.

There are key trade-offs involved in requiring higher data capability on existing copper networks:

- If a higher level of data capability on the existing telephone network is mandated, incentives to invest in alternative technology are likely to decrease. There are a number of exciting new technologies coming available and the Government does not want to lock New Zealand into a copper wire future if that is not the best way forward;

- As a higher level of geographic coverage for data capability is required, for a higher percentage of lines, the costs of upgrading the existing network escalate dramatically.

The approach decided on by the Government is world leading in terms of mandating a basic data requirement as part of a universal service obligation.

Why has the upgrade not been provided for 100% of lines?

The cost of upgrading the last one percent of residential lines is prohibitive compared to the costs of upgrading to 99 percent. Internet access in the most remote rural areas is likely to be provided more efficiently through other technologies and other initiatives.

Why should other telecommunications companies contribute to the Kiwi Share costs?

Other telecommunications companies will only contribute to net Kiwi Share costs if it is established that there are net costs using a robust costing process set out in the new Telecommunications Act. Industry currently contributes to the costs through a premium on prices for interconnection with Telecom’s network. The mechanism in the new Telecommunications Act will replace this. It will be more transparent and competitively neutral. The new legislation will give the Telecommunications Commissioner the final decision over the calculation of costs and cost contributions. It is also linked to the enforcement mechanism, as the Commissioner will be able to withhold the industry contribution if Telecom fails to meet its Kiwi Share obligations.

Why is the Government not putting the Kiwi Share upgrade out to competitive tender?

The Government has not ruled out this option for the future. Tendering universal service obligations is a highly complex matter and is only just being considered in some countries. Australia, for example, has recently implemented a three-year pilot study to determine whether this approach has merit.

The Government will give further consideration to competitive tendering next year. At present, the Government considers that the complexities and costs involved in competitive tendering (including tender design, property rights issues and transitional issues) do not justify changes.

ENDS

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