Views sought on Telecom operational separation

Hon David Cunliffe Minister of Communications

Communications Minister David Cunliffe has released the government's consultation document on the operational separation of Telecom NZ.

"The operational separation of Telecom is one of a number of reforms this Labour-led government is implementing following last year's Stocktake review and the passage of the enabling legislation," Mr Cunliffe said.

"The reforms are expected to deliver a more effective telecommunications sector with increased competition and efficient investment in infrastructure and services for the long-term benefit of end-users.

"For too long, we have languished near the bottom of the OECD tables for broadband and telecommunications sector performance, and it became clear that without significant change to the competitive environment, our poor performance was destined to continue."

Part 2A of the act sets out the legislative process for the minister to approve binding and enforceable operational separation undertakings (which form part of a "separation plan") made by Telecom.

The process provides for the minister to issue a detailed determination of further requirements, over and above those already set out in the act, with which Telecom's operational separation plan must comply.

"Since the passing of the legislation last December, the government has been doing the detailed work on how best to separate Telecom NZ into at least three separate business units," Mr Cunliffe said.

"I welcome public and industry views on whether the draft proposals strike the right balance given New Zealand's unique circumstances. Those views will help guide me as I decide on the requirements that will be built into my determination.

"Following the issuing of the final determination, Telecom will have 20 working days to prepare a draft separation plan. Industry stakeholders and the public will be invited to provide their views and comments on the draft separation plan."

Consultation on the initial model for separation will be conducted over the next three weeks, with submissions to be provided to the Ministry of Economic Development no later than 5.00pm on Friday 27 April, 2007. Further details and the consultation document are available at

www.med.govt.nz/telecommunications/operational-separation.

Questions and Answers – Operational Separation of Telecom

1. What is the process for the operational separation of Telecom?

The detailed process, as set out in Part 2A of the Telecommunications Amendment Act, is explained on page 19 of the consultation document at www.med.govt.nz/telecommunications/operational-separation.

2. What is government currently consulting on?

Pursuant to the objectives arising from the government's Telecommunications Stocktake of May 2006 and the Telecommunications Amendment Act (No. 2) 2006, the Ministry of Economic Development has undertaken research into separation models and Telecom's current operational model. As a result, the ministry has proposed draft parameters for the robust, three-way operational separation of Telecom NZ, contained in the consultation paper entitled "Development of requirements for the operational separation of Telecom".

The minister is now seeking industry and public feedback on these principles, and whether they strike the right balance given New Zealand's unique situation, before entering into the legal detail of his draft determination

The consultation document, and the views received on it, will inform the minister's Determination of requirements and help determine implementation priorities and timetables.

3. Why is the government imposing operational separation on Telecom?

The Telecommunications Amendment Act clearly sets out the purposes of operational separation, namely: · To promote competition in telecommunications markets for the long-term benefits of end-users of telecommunication services in New Zealand; and · To require transparency, non-discrimination, and equivalence of supply in relation to certain telecommunications services; and · To facilitate efficient investment in telecommunications infrastructure and services. The government has a strong parliamentary mandate for the robust, three-way operational separation of Telecom.

4. What are the key features of the proposed separation model?

· The operational separation of Telecom into a minimum of three separate operational units in respect of fixed network services: – an access network services unit; – a wholesale unit; and – a retail unit. · The creation of a separate Access Network Services unit that will operate on a standalone basis, controlling the physical bottleneck local access loop and backhaul assets, including existing and future fibre and wireless access assets. · Arms-length separation between all downstream Telecom retail units and upstream network and wholesale units. · The creation of a wholesale business unit that will operate on an arms-length basis, providing access to key fixed network regulated services, including advanced bitstream services to all service providers (including Telecom). · The establishment of an Independent Oversight Group to ensure the letter and intent of the Undertakings are faithfully implemented. · Specific, enforceable, implementation milestones.

The consultation document can be downloaded from the Ministry of Economic Development's website at

www.med.govt.nz/telecommunications/operational-separation. 5. How does the model deal with future development of the network?

The model proposes that Telecom be required to place its existing and future fibre and wireless access assets in the Access Network Services unit, not just the current and future copper. This means that the unit will undertake all future access network investment, including potential roll-out of fibre closer to the customer.

6. How will the operational separation of Telecom affect the telecommunications market?

The operational separation is expected to have a positive benefit on the competitive landscape by removing many of the opportunities and incentives for discriminatory behaviour by Telecom. This, along with the improved transparency of costs and information that separation will deliver, will have a positive overall impact on competition and investment confidence by entrants, which in turn is expected to stimulate new investment.

As evidenced by the results in the United Kingdom, operational separation is expect to also provide additional momentum to the uptake, and effectiveness, of unbundled local loop and bitstream products. The operational separation of British Telecom (BT) has greatly informed the policy rationale upon which the proposed separation model is based.

7. What lessons have been learned from the UK experience? Why was the UK chosen?

The UK model for the operational separation of BT is generally considered a successful model, as it has produced good outcomes for both the general market, and BT as well.

Cabinet identified the UK model as a useful basis for a robust operational separation and subsequently there has been extensive consultation with BT, OfCom, UK DTI and the EU Commission.

8. What is the timetable for the completion of the Separation Plan?

The approximate timetable for the completion of the separation plan this year is as follows:

April Consultation paper released for public comment

June Minister's Determination released

July Telecom provides draft separation plan

August Public consultation on draft separation plan

September Separation plan accepted

This timetable assumes that Telecom's draft separation plan, modified following public consultation, is accepted by the minister. If it is not, additional process steps will be required that could extend the timeframe.

9. What is the timeframe for implementation of the Separation Plan?

Implementation of all of the important aspects of the undertakings is expected to be completed within three years, with some elements taking up to five years. Implementation timeframes will be guided by the importance of each outcomes as well as cost-benefit trade-offs.

Industry input into implementation priorities is being sought at a high level in the consultation document.

ENDS

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