Members of the Inquiry
A Billion Dollar Alliance
On February 23, the acting minister of communications, Trevor Mallard, announced the terms of reference and membership of a three-person ministerial inquiry into telecommunications. The prospect of the inquiry had been signalled well in advance, before the new Labour/Alliance coalition government came to power in New Zealand's general election in late November 1999.
The terms of reference for the ministerial inquiry state that the inquiry shall assess the extent to which the current regulatory regime meets the government's objective for the telecommunications services markets. The government's objective for telecommunications is to ensure that the regulatory environment delivers cost efficient, timely, and innovative telecommunications services on an ongoing, fair and equitable basis to all existing and potential users.
The government has highlighted a number of issues for the inquiry to focus on, including the following.
The interconnection environment
The inquiry should consider the need to establish pricing and other contract principles that would assist parties in negotiating interconnection agreements, as well as deciding on dispute resolution mechanisms. New Zealand's 'light-handed approach' has been criticized in the past for not having established these principles and mechanisms. This has caused over-reliance on the courts to deal with access issues, and this has proved to be expensive, time consuming and largely ineffective.
Local-loop unbundling has also been highlighted and the government has commissioned a report on this issue from telecommunications consultants, Ovum.
The Kiwi Share Obligation
It is reported that the government has received advice from Crown Law that Telecom's 0867 internet access policy is contrary to the Kiwi Share Obligation (KSO). It is unlikely that Telecom has breached the KSO as it continues to maintain the free local calling option required by the KSO for residential access to the Internet (ie, by dialling the 0867 prefix). The government recently commented that the KSO has been ineffectual in influencing Telecom's behaviour and that Telecom has acted anti-competitively on the 0867 issue.
The Number Administration Deed was entered into by a number of carriers in December 1998 and was referred to the Commerce Commission for authorization. The Commerce Commission gave this authorization despite the protests of Clear, among others. The inquiry will consider the adequacy of the Number Administration Deed, which deals with matters including (i) the appointment of an independent number administrator and (ii) a process for resolving an appropriate long-term number portability solution.
Other competition issues
The government has suggested that two-types of anti-competitive behaviour be examined, and the extent of such behaviour in the telecommunications industry. These include (i) bundling of competitive and non-competitive retail telecommunications services and (ii) price discrimination. The inquiry also needs to establish the need for new regulatory institutions. The most likely option for the government is to increase the powers and budget of the Commerce Commission. This is consistent with the Australian approach, where telecommunications regulatory powers were transferred from the old Austel to the general competition regulator, the Australian Competition and Consumer Commission (ACCC).
The inquiry is to be headed by Hugh Fletcher, former chief executive of one of New Zealand's largest companies, Fletcher Challenge. Fletcher has extensive business experience and is reported to be sympathetic to Labour Party policy. However, he does not appear to have had any particular experience in telecommunications.
This cannot be said of Allan Asher who used to be deputy chair of the ACCC, which has responsibility for administering certain aspects of Australia's telecommunications-specific competition laws. Asher's presence on the inquiry is consistent with the government's desire to have international input into the inquiry and also to see some harmonization of competition laws between the two countries.
The third member of the inquiry is Cathie Harrison, a competition lawyer who has been a member of New Zealand's Commerce Commission since 1998. Harrison acted for Telecom in the early 1990s when she was a partner at a Wellington law firm. As a member of the Commerce Commission, she has been involved in a number of cases concerning the telecommunications industry and is therefore thought to have a good grasp of the issues that the inquiry will confront.
The inquiry team will begin work immediately and will hold discussions with key industry participants and consumer groups. The members will prepare a draft report and public submissions and hearings will be held.
The team must report its findings to the communications minister by September 29 2000. An inquiry web site is under construction. The address of the Inquiry website is www.teleinquiry.govt.nz.
The day after the ministerial inquiry was announced a major development occurred in the telecommunications industry. It was announced that a 50/50 joint venture will be formed between Telstra New Zealand (a subsidiary of Australia's Telstra Corporation) and Saturn (a subsidiary of Australia's Austar). The two companies will reportedly invest approximately NZ$1.1 billion over five years to roll out a national broadband network. The roll out will cover New Zealand's major centres and the network will be available to approximately one million homes and 250,000 businesses.
Telstra has been in New Zealand for several years and has focused on the long-distance and international business market. Saturn offers pay-TV, local-call services and internet access to homes and small businesses in the Wellington region.
This announcement comes after British Telecom (owners of Clear) and Telstra failed to reach agreement at the end of 1999 on the sale of Clear by Telstra. In some respects, Clear is now exposed as the Telstra/Saturn linkage sets itself up as the main competitor to Telecom. However, it is reported that Clear may seek to join Telstra and Saturn to make an even stronger competitor.
This development will have an impact on the ministerial inquiry. Telecom will point to this alliance as further proof that, although the New Zealand 'light-handed' regime is maligned by many of its competitors, large international telecommunications companies (eg, BT, Telstra, Vodafone) have decided to invest significant amounts in New Zealand telecommunications. This investment, Telecom says, demonstrates that the New Zealand regime is working well and is bringing benefits to consumers. However, Telstra and Saturn point out that the anticipated changes to the regulatory regime have given them the confidence to make this investment.
For further information on this topic please contact Malcolm Webb at Bell Gully by telephone (+64 4 473 7777) or by fax (+64 4 473 3845) or by e-mail ([email protected]). The Bell Gully web site can be accessed at www.bellgully.com.
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