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Undertaking From Telecom On Data Tails Accepted

Media Release

Issued 28 June 2003-04/143

Commission accepts undertaking from Telecom on data tails

The Commerce Commission has accepted Telecom's undertaking to supply data tails at cost-based prices.

The Commission has monitored the evolution of Telecom's commercial data tails proposal since its December 2003 recommendation on unbundling to the Minister of Communications.

In its unbundling report, the Commission identified welfare benefits from regulating access to data tails for Telecom's competitors. It did not recommend regulation, on the basis that Telecom's Unbundled Partial Private Circuits (UPC) service offer had the potential to adequately address a major 'bottleneck' feature of the market for the provision of data services.

The primary issue of concern to the Commission in relation to the UPC offer was Telecom's proposal to price major elements of the service at a discount to an assumed 'retail' price. In the unbundling report, the Commission's view was that cost-based pricing was the efficient form of pricing that should be applied to components of the service reliant on legacy assets.

The Commission accepted Telecom's undertaking on the basis of its commitment to the following pricing approach:

- cost-based pricing will be established for data tails with reference to a benchmarking exercise carried out by the Commission;

- Telecom and other interested parties will have an opportunity to make submissions on the form such benchmarking would take;

- the prices will apply to services delivered by legacy assets;

- the price selected as a result of the benchmarking will be made available by Telecom for an initial period of two years, or until the earlier replacement of legacy assets.

In addition, should users of the service or Telecom seek long-run incremental cost prices following the benchmarking, Telecom has agreed that the Commission will decide on the form of the price calculation, following consultation with interested parties.

"This step satisfies the Commission's reservations concerning ongoing pricing of this service," said Telecommunications Commissioner Douglas Webb.

"The Commission has every expectation that Telecom will follow through on its undertaking. As a consequence, I do not believe there will be a need to revisit a regulatory solution of the data tails problem.

"The Commission is pleased that Telecom has moved in this direction voluntarily. It is consistent with the promotion of commercially-based solutions."

The undertaking does not affect the prosecution of Telecom by the Commission under the Commerce Act for anti-competitive pricing of data tails, which relates to past conduct.

The correspondence outlining the undertaking made by Telecom is available on the Commission's website, www.comcom.govt.nz , select Telecommunications Regulation.

Background

In its December 2003 report to the Minister of Communications, the Commission did not recommend the unbundling of other elements of Telecom's fixed Public Data Network beyond those supporting the asymmetric DSL bitstream service.

The decision not to recommend unbundling of other elements was influenced by Telecom's announcement of an Unbundled Partial Private Circuits services offer that has the potential to provide a commercial solution to a competition problem in the supply of high grade data services to corporates and other large users.

The Commission believed that an opportunity should be allowed for industry negotiations to result in an enhanced service that would promote further competition. The Commission signalled in its unbundling report that should a successful negotiated outcome fail to eventuate by July 2004, it would be appropriate to re-evaluate the merits of regulated unbundling of a data tails or partial private circuits service.

ENDS

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