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TSO reform should reflect modern landscape

For immediate release

Telecommunications Carriers’ Forum Media Release

TSO reform should reflect modern landscape

Auckland, 25 July 2008 – The Telecommunications Carriers’ Forum (TCF) has completed its Report on the Telecommunications Service Obligation (TSO) and has submitted its recommendations to government.

“There is a strong case for the existing TSO arrangements to be reformed given the very significant changes in technology and the competitive environment that have occurred since the TSO was first established,” TCF CEO Ralph Chivers said.

“It’s hard to imagine living life without access to a telephone service of some kind. For many in our community a telephone service is their only connection to the outside world: it is their means of doing business, of getting the services they need, of staying in touch, of staying safe. This is particularly true for customers in rural and hard-to-reach areas.”

“The TSO was originally designed with these fundamental needs in mind. However, the competitive and technological landscape has changed so significantly in the last 20 years that we now need to redesign it from the ground up.”

The TSO as we now know it was originally included as a component of the “Kiwi Share” obligations when Telecom was privatised in 1990. It was updated in 2001 and renamed the TSO.

The current TSO defines a basic residential telephone service (including dial-up Internet access) that Telecom must provide nationally. The TSO currently imposes obligations on Telecom including an inflation-adjusted price cap and a requirement to maintain a free local-calling option.

“At the heart of our recommendations is the need to redefine the TSO in forward-looking technology-neutral terms,” Mr Chivers said. “This will future-proof the TSO and ensure that the most cost-effective technologies are used going forward.”

“The TCF also believes that it is time for the TSO to be opened up to competition by allowing other companies to tender to be the TSO provider. There are a range of telecommunications companies, employing a range of technologies including wireless, who are now in a good position to provide TSO services to the more difficult to serve areas of New Zealand.”

“We also believe that competition is already doing the job in many areas of New Zealand. Where there are two or more providers of residential services to consumers we are seeing a range of packages and calling options some of which provide more than the current TSO requires and for a lower price. One has to question whether a formal TSO obligation is still needed in these areas,” Mr Chivers said.

Other key recommendations contained in the TCF’s report include:
• continuing with free-local calling in TSO areas;
• moving to a funding model based on general taxation;
• moving away from Telecom-centric obligations to industry “codes of practice” for matters like call quality and emergency services call handling;
• maintaining a clear separation between the TSO and any initiatives to increase the uptake of broadband.

The TCF’s report has been prepared as an input into the government’s review of the TSO. “We are grateful for the opportunity to present a considered industry view to the government,” Mr Chivers said, “and we welcome their preparedness to take a fresh look at the issues.”

For more information contact:
TCF CEO, Ralph Chivers ph 021 576 424
Telecommunications Carriers' Forum
Ground Floor, 3/44 William Pickering Drive, Albany, Auckland
Tel: +64 9 414 9713 / Fax: +64 9 414 5532 / Email:

Questions and Answers

Why is broadband not included in the recommendations?

The TCF agrees that a basic residential access service should include internet access. In keeping with the technology neutral approach we consider that it is no longer appropriate to specify the service as “dial-up Internet”, allowing a range of other technology options to be employed.

The TCF recognises the importance of improving the availability and quality of broadband throughout New Zealand. However, in common with a number of other submitters to the MED’s original discussion document (including TUANZ and the Commerce Commission), we do not believe that the TSO is an appropriate mechanism to address any gap in the broadband needs of rural and remote customers – certainly not while the broadband market is still developing.

Furthermore, we believe that a well designed TSO will naturally result in a higher penetration of broadband into rural areas as it will often make sense for the two to be deployed together. Indeed, for some service providers broadband is already the means by which a voice service is delivered.

The TCF and its members will continue to work with government and other stakeholders to explore avenues for meeting the broadband needs of the industry’s rural customers.

What about emergency services?

Maintaining a reliable means of contacting emergency services is critical for all telecommunications users.

The TCF is working with government officials to develop an Emergency Services Code of Practice that is being designed to be applicable to all telecommunications service providers and all technologies.

Once this code is in place, there is no practical need for the current emergency services requirements to remain in the TSO, as they will be addressed elsewhere. However, we would expect that any future TSO provider would be required to comply with the Emergency Services Code as a condition of being the TSO provider.

What is happening to rural areas? Will they lose service?

The TCF’s recommendations are primarily directed at ensuring that rural and under-served areas continue to be provided with affordable basic telecommunications services, including reliable access to emergency services calling.

The description of the TSO service has been re-crafted in technology neutral terms in order to allow the TSO service provider (whether it be Telecom or anyone else) to adopt the most efficient and effective technology in the circumstances.

Under the TCF’s recommendations, rural and remote customers who are provided a service under the terms of the existing TSO will continue to receive a service. However, the technology and the service provider may possibly change.

Will rural dwellers lose the comfort of having Telecom as the supplier of last resort?

The days of having one telecommunications provider in New Zealand have long gone. Today we have a number of credible network operators and telcos operating in the New Zealand market. Opening the TSO to a competitive environment should deliver the kinds of efficiencies and cost reductions that the competitive marketplace has delivered in other areas.

Under the Contestable option we recommend, the winning tenderer would be the provider of last resort for the contract period and would be required to provide and maintain service. We expect that the tender requirements would ensure that the service provider was capable of delivering on their commitments for the contract period.

Is this just the industry trying to wriggle out of the costs of providing a "proper" phone service to all customers?

Not at all. The current TSO approach is not relevant in an age of rapidly changing technology and increasing competition – it needs to be brought up-to-date and be future-proofed. There is strong agreement within the industry and user groups that reform is essential.

In many areas of New Zealand, we believe that the level of competition (including from regulated access to Telecom’s network) is sufficient to roll-back many of the TSO obligations.

Customers who continue to need the protections afforded by the TSO will continue to receive them.

Are the alternative technology options such as wireless and satellite credible options for rural areas?

The TCF is confident that existing and emerging technologies, including wireless, mobile and satellite technologies, will be able to deliver TSO services to an acceptable standard. The revised TSO service is intended to permit alternative technologies where they are the most cost effective option.

Why do you advocate a change to the funding model – isn’t this the industry just trying to weasel out of paying anything?

Not at all. Ultimately the consumer pays for the TSO subsidy regardless of who appears to be writing the cheques.

The TCF accepts that an industry levy remains a viable option and we would continue to support such an option if the costs remain moderate. However, there are good efficiency reasons for funding the TSO out of general taxation.


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