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Revised Draft TSO cost calculation for 2005/06

Commerce Commission releases Revised Draft TSO cost calculation for 2005/06

The Commerce Commission today released a revised draft telecommunication service obligations (TSO) determination for 2005/06. The initial 2005/06 draft TSO, released in July 2007, had been assessed at $78.2 million. The revised draft TSO cost is $64.6 million.

The determinations give the Commission's assessment of the net cost Telecom has already incurred in meeting its TSO obligation to provide local residential telephone service for 2005/06. Telecom is obligated to provide service to residential customers who may not otherwise be provided with service at an affordable price. The determinations also share the cost between Telecom and other operators whose networks are interconnected with Telecom's fixed network. The Commission has reviewed the amount after considering submissions received from the previous draft.

Following the release of the initial 2004/05 and 2005/06 draft TSO determinations in July 2007, submissions were received on the impact of introducing mobile technologies in the Commission's cost model and a conference was held on this issue.

The Commission has concluded that it should no longer introduce mobile technologies into the TSO modelling process. By no longer introducing mobile technologies into the model, the Commission has reduced Telecom's investment risk associated with supplying the TSO. This reduction in risk has resulted in a decrease in the TSO cost.

Telecom bears 69% of the TSO cost. The remainder is carried primarily by Vodafone and TelstraClear. The cost for 2005/06 when finalised will be shared between Telecom, TelstraClear Limited, WorldxChange Communications Limited, Vodafone New Zealand Limited, CallPlus Limited, Compass Communications Limited, TeamTalk Limited, ihug Limited and Woosh Wireless Limited in proportion to their net liable revenues.

Interested parties are invited to make submissions on the determination. The closing date for submissions is 5pm, Tuesday 10 June 2008. The Commission does not anticipate that it will be necessary to hold a further industry conference on this matter.

A copy of the Commission's revised draft determination, including the Executive Summary, will be available by 1pm, 26 May 2007 on its website under Industry Regulation -Telecommunications - Telecommunications Service Obligations - 2005/2006 TSO Determination


The Local Residential Telephone Service Obligations (TSO) is the successor to the Kiwi Share. The TSO was established by the Crown to recognise the economic costs that Telecom carries in providing service to commercially non viable residential customers who they would not otherwise provide service to at an affordable price.

The Commission administers the TSO deeds by:
• monitoring compliance of the service providers;
• determining the cost faced by the service providers, unless the amount is specified in the deed;
• determining the liable persons; and
• determining the apportionment of this cost among the liable persons.

Once the TSO costs have been determined, the costs are shared among liable persons. Prior to the revision of the Telecommunications Act this cost apportionment was part of the TSO determinations. Now, under the revised act, the apportionment is provided in a separate cost allocation determination.

The 'liable persons' are Telecom and the companies operating public switched telephone networks (PSTN) that are interconnected with Telecom's PSTN.


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