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2007 telecommunications market monitoring report

Commerce Commission releases 2007 telecommunications market monitoring report


The Commerce Commission has released its 2007 telecommunications monitoring report analysing the state of New Zealand telecommunications markets.

This is the first annual monitoring report after recent amendments to the Telecommunications Act empowered the Commerce Commission to monitor competition in telecommunications markets and their performance and development. The report also benchmarks the performance of the New Zealand telecommunications markets against OECD data.

Telecommunications Commissioner Dr Ross Patterson said the report shows that there are signs of increasing competition during 2007 in most of the telecommunications markets analysed, with average retail prices falling over all sectors, apart from monthly line rentals.

Dr Patterson said, "The Commission's monitoring of telecommunications markets has revealed improvements in New Zealand's performance, partly in response to the recent regulatory reforms. However, many key markets are still characterised by limited competition. The Commission's telecommunications strategy is designed to increase competition in these markets with targeted intervention, and to ensure that competition is sustainable in the longer term."

"We anticipate that with the rollout of the unbundled local loop, improvements in competition will accelerate, with flow-on benefits to consumers," said Dr Patterson.

The key findings from the report include:

Mobile • Mobile phone usage continues to increase. Mobile connections rose by 12 percent. By 31 December 2007, mobile penetration had reached 104 percent. Mobile calling minutes increased by 15 percent for the 2006/07 financial year, although average mobile calling per user remains relatively low by international standards.

• The introduction of new calling plans has benefitted some mobile users, particularly through cheaper calls to selected users on the same network, but OECD benchmarking indicates others are still paying high prices by international standards.

• There was considerable progress towards new entry in the mobile market, with NZ Communications (formerly Econet) starting to build its own network and signing a roaming agreement with Vodafone NZ. However, there was slow progress with mobile co-location. In addition, mobile-to-mobile termination rates for calls and texts appear to be above cost, which may hinder the development of competition in the mobile market.

Fixed Line While calling prices are reducing in the fixed line market, Telecom's standard residential plans did not rate well in OECD benchmarking and slipped in ranking over the year. This was largely due to the annual rise in the monthly line rental, and the relatively high cost of fixed-to-mobile calls, which make up an estimated 44 percent of calling costs for both households and businesses.

Broadband The price of residential broadband services in New Zealand compares favourably to that in other similarly developed countries, with prices for low, medium and higher users all ranking in the top third of the plans surveyed.

The broadband market continued to grow strongly, and by September 2007 had passed an important milestone of broadband surpassing dial-up as the most common means of connecting with the internet. There is healthy competition, with Telecom retailing around 60 percent of all broadband connections. In the retail market for broadband over phone lines, Telecom's competitors' share of the growth in connections rose to over 70 percent for the final quarter of the year. The Commission's local loop unbundling determination resulted in very competitive bundled broadband promotions appearing in the market in the latter half of 2007. The first unbundled lines became available in early 2008, and offered competitive prices for a bundle of fixed line, national calling and broadband services, coupled with unconstrained data speeds and high data caps.

Telecom has announced its cabinetisation plans which will reduce the number of lines in exchanges that can be accessed by Telecom's competitors. In response, the Commission is progressing sub- loop unbundling, which will allow other telecommunications companies to access lines that are fed directly from Telecom's distribution cabinets.

In 2007, the Commission engaged Epitiro, an independent monitoring company, to measure the quality of broadband service in New Zealand. Epitiro data shows that backhaul and other services arranged by the Internet Service Provider (ISP) appear to make a significant difference to the quality of the broadband service delivered to the end-user.

The Commission believes that telecommunications markets are likely to start to show further gains in competitiveness in 2008 with the implementation of local loop unbundling and the entry of a third mobile network operator.

The 2007 report is available on the Commission's website: www.comcom.govt.nz, under Industry Regulation /Telecommunications/MonitoringandReporting.

Background The sector monitoring provision of the Telecommunications Act 2001 came into force on 22 December 2006. The relevant section states: 9A Functions of Commission in relation to sector monitoring and information dissemination (1) In addition to the other functions conferred on the Commission by this Act, the Commission– (a) must monitor competition in telecommunications markets and the performance and development of telecommunications markets; and (b) may conduct inquiries, reviews, and studies (including international benchmarking) into any matter relating to the telecommunications industry or the long-term benefit of end-users of telecommunications services within New Zealand; and (c) must make available reports, summaries, and information about the things referred to in paragraphs (a) and (b). (2) The function in subsection (1)(c) does not require the Commission to release all documents that the Commission produces or acquires under this section.

Commission media releases can be viewed on its web site www.comcom.govt.nz

Executive Summary - 2007 telecommunications market monitoring report

1. 2007 was a year of great change for New Zealand telecommunications markets, following the passing of the Telecommunications Amendment Act (No 2) 2006 in December 2006, which made significant changes to the Commission's regulatory functions.

2. There were signs of increasing competition during 2007 in most of the telecommunications markets analysed, with average retail prices falling along with some publicly listed prices.

3. Mobile phone usage continues to increase with mobile connections rising by 12 percent to 4.25 million in the 2006/07 financial year and outwards mobile minutes increasing by 15 percent for the same period. By 31 December 2007, mobile penetration had increased further to reach 104 percent. However, average mobile calling per user remains relatively low by international standards.

4. The introduction of new calling plans has benefitted some mobile users, particularly through cheaper calls to selected users on the same network, but OECD benchmarking indicates others are still paying high prices by international standards.

5. There was considerable progress towards new entry in the mobile market, with NZ Communications (formerly Econet) starting to build its own infrastructure and signing a roaming agreement with Vodafone NZ. However, there was slow progress with mobile co-location. In addition, mobile-to-mobile termination rates for calls and texts appear to be above cost, which may hinder the development of competition in the mobile market.

6. While calling prices are reducing in the fixed line market, Telecom's standard residential plans did not rate well in OECD benchmarking and slipped in ranking over the year. This was largely due to the annual rise in the monthly line rental, and the relatively high cost of to fixed-to-mobile calls, which make up an estimated 44 percent of calling costs for both households and businesses.

7. The price of residential broadband services in New Zealand compares favourably to that in other similarly developed countries, with prices for low, medium and higher users all ranking in the top third of the plans surveyed.

8. The broadband market continued to grow strongly, and by September 2007 had passed an important milestone of broadband surpassing dial-up as the most common means of connecting with the internet. There is healthy competition in the broadband market as Telecom retails around 60 percent of all broadband connections. In the retail DSL market, Telecom's competitors' share of the growth in connections rose over the year to end at above 70 percent in the December quarter.

9. The Commission engaged Epitiro to measure the quality of broadband service in New Zealand. It is encouraging that Epitiro data shows that despite Telecom being the wholesale access provider for all the ISPs offering a DSL service, the backhaul and other services arranged by the ISP appear to make a significant difference to the quality of the broadband service delivered to the end-user.

10. Progress towards unbundling the local loop resulted in very competitive bundled broadband promotions appearing in the market in the latter half of 2007. The first unbundled lines became available in early 2008, and offered a lower total cost for a bundle of fixed line, national calling and broadband services on an ongoing basis.

11. Telecom has announced its cabinetisation plans which will reduce the number of lines in exchanges that can be accessed by Telecom's competitors. In response, the Commission is progressing sub loop unbundling, which will allow carriers to access lines that are fed directly from Telecom's distribution cabinets.

12. Well functioning and cost-based wholesale telecommunications markets are necessary to underpin competition in the retail markets. The Commission has some concerns with the high wholesale price of particular services, such as fixed-to-mobile termination, that are needed by retailers to offer a full bundle of telecommunications services to their customers. The Commission will therefore be closely watching developments in these markets.

13. In conclusion, the 2006 reforms are already having a positive effect on telecommunications markets and are likely to start to show further gains in 2008 with the implementation of local loop unbundling and enhanced bitstream access, and the entry of a third mobile network operator.


ENDS

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