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InternetNZ Welcomes Commerce Commission Decision

InternetNZ welcomes Thursday’s Commerce Commission decision finalising the Telecommunications Services Obligation (TSO) liabilities for the 2002/2003 year.

David Farrar, Chairman of InternetNZ’s Legal & Regulatory Committee said:

“The effect of some submissions made to the Commission would be to include ISPs which do not provide phone services within the TSO tax net. If that happened, ISPs would end up paying big sums when they least expected to do so. We are already very concerned about the overall TSO regime. It needs a comprehensive review, but this is not being fully addressed in the current review of the Act by the Ministry of Economic Development. “

Michael Wigley of Wigley & Company, solicitor assisting InternetNZ on Telecommunications Act issues, said:

“The TSO determination has resolved, favourably from the perspective of most Internet stakeholders including ISPs, two important issues affecting their potential TSO liabilities.

First, the Commission has interpreted the Telecommunications Act in a way which limits parties liable to pay toward TSO, to those with interconnection agreements with Telecom. Also confirmed is that ISPs that provide only ISP services, are not captured anyway within the TSO tax net.

The second important outcome is that the Commission has confirmed its “net revenue” methodology for figuring out relative payments by each party that contributes to the TSO. It has continued to reject Vodafone’s preferred approach: TSO liability based upon “retail revenues”.

In simple terms, a “retail revenue” methodology is similar to a sales tax (ie: the payment is made based on the retailers’ revenues). “Net revenue” on the other hand is based on the GST model (each supplier in the chain between network provider and retailer contributes, based on the difference between inputs and outputs).”

David Farrar said:

“The “net revenue” model is fairer. If ISPs ended up being liable for TSO in respect of UBS services (that is, ADSL services supplied by ISPs under wholesale from Telecom), then a “retail revenue” model would have ISPs paying, in respect of UBS services, around 4% of relevant gross revenues. That would be a far higher percentage of net profit. Margins for this product are already tight, made worse by the imposition of churn fees, etc.”

Extending the TSO to ISPs, and then applying the Vodafone-sponsored “retail” methodology, would have been crippling for ISPs and ultimately highly disadvantageous for internet stakeholders. ”

Michael Wigley said:

“The retail v net revenue debate (and whether ISPs should contribute to TSO) is also up for review in the current MED review of the Act. InternetNZ is strongly opposing any change which extends the parties to be included within TSO liability and any change toward the “retail” revenue methodology.”


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