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Select C'ttee Silent on Telecom Separation Options

Select Committee Silent on Telecom Separation Options, Despite Cabinet Request

Media Release 17 July 2006

The Select Committee charged with the Telecommunications Amendment Bill has just announced that submissions must be lodged by 11 August.[1]

Said regulatory lawyer, Michael Wigley (who acts for ISPs and Internet stakeholders), “The legislation is important, complex and calls for strong stakeholder input, even though time is understandably tighter than usual.

“Separation of Telecom is a key part of the regulatory framework. The Bill opts for separation at the lower end of the scale: accounting separation (by which Telecom must prepare and disclose regulatory accounts so that the Commerce Commission and stakeholders can better track what’s happening). Other options include:

- operational separation (which would require Telecom to “virtually” separate out network, wholesale and retail activities); and

- the nuclear (and unlikely) weapon: structural separation (a full break up of the Telecom business).

“Cabinet, when approving drafting of the new legislation, stated that it “agreed that operational and structural separation are options on which the government is prepared to consider the evidence, and agreed to encourage the select committee to seek submissions”[2]

“It’s a pity that the select committee hasn’t yet taken up Cabinet’s invitation and asked stakeholders to submit on other separation options. There’s only a short period before submissions close on 11 August.

While a major step forward for the economy, and a strong move by Government, the regime in the Bill (including unbundling the local loop and accounting separation), has failed in both Australia and the UK: that’s what regulators in each of those countries say (ACCC and Ofcom respectively).

For example, in July 2005, Commissioner Willett of the Australian ACCC said, when confirming that accounting separation wasn’t working, “Robust operational separation for Telstra was crucial to ensure the effectiveness of the telecommunications access regime.”.[3]

“The regulator in the UK had the same view.

Both countries have moved to operational separation.

“Against that background, the question should be: “Why not move straight to operational separation unless it’s shown that the New Zealand economy is unique?”, rather than the other way around.

“It’s short and easy to add provisions to the Telecommunications legislation to accommodate immediate or possible change to operational separation. For example, the Australian operational separation law runs to only a few sections in their Act.

If the move to operational separation is not made immediately in this legislation, the Act can at least allow the Commerce Commission or the Minister to make and implement that call quickly. Only a few sentences in the Act are needed to achieve this.

Otherwise we’ll have to wait until yet more legislation is passed. If New Zealand is anything like the international experience, the new regime, welcome though it is, won’t work and we’ll be held back yet another year or two. Robust operational separation is probably the most important step to take and where most of the debate should take place. Government doesn’t need to make the decision now even though that’s desirable: instead it can set up a regime so that quick action can be taken.

As Telecom’s Australian subsidiary sought robust operational separation of Telstra, Telecom would have to clearly demonstrate why this shouldn’t happen in New Zealand (rather than the other way around). Telecom’s New Zealand proposal so far falls well short of what would work.

Stakeholders need to be very wary of claims that New Zealand is unique. So often in the telecommunications world, that’s turned out to be a smokescreen for a solution that doesn’t work – for New Zealanders.





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