More predictable regulation for NZ's telecom backbone

Thursday 14 April 2016 10:31 AM

More predictable regulation for NZ's telecom backbone post-2020

By Pattrick Smellie

April 14 (BusinessDesk) - The copper and fibre-optic networks used for New Zealand telecommunications services will move to a simpler, more predictable form of regulation, similar to that used for regulating the monopoly parts of the electricity system, Communications Minister Amy Adams announced.

A review of the 15 year-old Telecommunications Act is also likely to see tweaks to the existing regime for mobile telecommunications infrastructure, to force more sharing of mobile towers by competitors and the possibility of regulation for the price of roaming services to promote mobile competition, which is judged to be "still vulnerable".

"While there's a requirement for telcos to provide a roaming service over their physical networks, there's no regulatory requirement on the price they can charge," Adams told BusinessDesk, referring to the mobile competition issues. "It's all very well to have a requirement to offer something, but if the price can't somehow be looked at it can be effectively defeated by non-economic charging."

The new regulation for the fixed-line network will have greatest impact on Chorus, the owner of the bulk of the country's copper and fibre network, and would be applied to both the old copper technology and the new fibre network, which the government has helped fund to accelerate fast internet access for 99 percent of New Zealanders by 2025.

Chorus chief executive Mark Ratcliffe welcomed the certainty that he expected a new regime would bring after a six-year process that saw several major changes in the proposed differential between charges for copper and fibre services, which caused value-destroying gyrations in telecommunications providers' share prices.

The changes will do away with the price-setting methodology at the heart of that uncertainty, known as Total Service Long Run Increment Cost, or TSLRIC.

"TSLRIC is designed to promote infrastructure competition, which is no longer our primary goal," says a six-page summary of today's high-level decisions published by the Ministry of Business, Innovation and Employment. "Vibrant retail competition is now happening over the top of our wholesale-only ultra-fast broadband networks."

The widely expected decision comes after a consultation process and will be followed by a consultation document and an intention to have the new legislation and pricing methodology in place well ahead of 2020 when a new regime is required because the current regulatory set-up will expire at the end of 2019.

The decisions mean a move from TSLRIC to a so-called 'building blocks methodology' (BBM), akin to that used to regulate both the national grid, operated by Transpower, and localised electricity networks, which operate as monopolies in their areas. BBM regulation has a pre-determined method for valuing network assets and puts caps on total revenues on services, along with a regulated rate of return on the assets employed.

BBM was better understood in capital markets than TSLRIC, the MBIE paper says. The huge value swings created by the regulatory uncertainty of recent years has been deeply criticised by professional investors, who said it discouraged foreign investors from the New Zealand sharemarket because of the perception that regulatory uncertainty could have large impacts on the value of their holdings.

The announcements also point to a need to protect consumers in the transition to a new regulatory regime by ensuring price stability, particularly for basic 'anchor products', which the government will consider identifying.

"For example, prices could initially be set for basic voice and broadband services with reference to entry-level prices already in the market," the paper says.

Decisions are required on whether to include the three local fibre companies under the BBM regime, but it won't apply to other networks, such as mobile, wireless and commercial fixed-line like Vodafone's cable network.

The Telecommunications Act will be the vehicle for the new regime, which won't touch current regulation of broadcasting infrastructure as it's judged to be facing increasing competition from digital technology.

High level decisions on possible changes to the regulation of broadcasting content would be announced "shortly," Adams said.

Internet NZ welcomed the decisions.

"Minister Adams has rightly set aside calls by some in the telco industry to allow an 'industry-led solution' to manage pricing after 2020. Regulating copper and fibre broadband wholesale prices from 2020 is the right move for internet users, the industry and for network builders like Chorus," said the lobbyist's chief executive, Jordan Carter.

(BusinessDesk)

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