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Time for the TSO to be scrapped

9 December 2008

Time for the TSO to be scrapped

The latest Telecommunications Services Obligation (TSO) draft determination from the Commerce Commission simply reinforces the urgent need for the TSO to be scrapped.

Not only has the overall cost of providing basic telephone services to rural New Zealand increased, but new entrant NZ Communications is forced to pay its TSO levy to Telecom before it has a single New Zealand retail customer on its books.

Vodafone GM of corporate affairs, Tom Chignell, says this is a gross distortion of the aim of the TSO which was to ensure service was provided to all New Zealanders.

"Having to pay the country's incumbent telco before even launching a service on the network simply proves that the TSO is a tax on competition. Since the industry was told it had to pay for the upkeep of these so-called 'commercially non-viable customers', the total cost has ballooned out to $400 million over the eight year period."

Vodafone says it's now time to scrap the whole TSO and look for a more cost effective and viable alternative that takes into account the changes in technology in the 18 years since the TSO was first introduced and focuses support on those in the community who find it most difficult to pay.

"Many of these customers are already covered by Vodafone's existing mobile network and as both Telecom and Vodafone commit to invest in mobile broadband out to 97% of the country's population, it's difficult to understand just why they are 'commercially non-viable'. It's time for us to completely re-think the way we fund those customers who are disadvantaged whether it's by distance or by income."

The annual cost of serving this group of customers has more than doubled over the past 7 years from $34 million a year to over $70 million a year. At a time when fixed, mobile and satellite services are dropping in price and equipment costs are declining, this is totally counter intuitive.

"In an era when the government is calling for increased competition in the market and companies like Vodafone are doing all they can to allow new entrants to come into the market, it is farcical to also require competitors to pay for the privilege before they have a single customer on board. Let's not forget that $400 million could have paid for more than a thousand new cell sites or a million mobile phones."

"As the former minister of communications pointed out last year, Telecom's investment in rural New Zealand has not kept up with the level of payments received from the rest of the industry. "

Vodafone is calling on the new government to scrap the TSO as soon as possible.

- ends -


Telecom has claimed that the TSO amount should be even greater than the $70.7m in the draft determination for 2007/08. Yet at the Digital Future Summit in November 2007, the then Minister of Communications estimated that the entire annual investment in the Telecom rural network was about $22m covering 231,000 lines. The latest TSO covers around 60,000 CNVCs and Telecom will receive $23.1m from other operators. So, Telecom is not even investing the amount received from other operators to fund the 58,000 TSO customer lines across all of its 231,000 rural lines. On a pro rata basis, Telecom is investing $5.5m per annum in the TSO customer lines in comparison with a supposed "loss" under the TSO of $70.7m.

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