Telecommunications Amendment Bill makes its final assent

New Zealand is in line for significant changes in its telecommunication industry following the passage of the Telecommunications Amendment Bill late last year. In this commentary, Bell Gully senior solicitor David Blacktop provides a brief overview of some of the key provisions of the new legislation.

The Telecommunications Amendment Act was passed in December 2006 heralding the beginning of a new era in telecommunications regulation in New Zealand.  The Act provides the legislative amendments necessary to implement the Government's decision to unbundle Telecom's local loop as well as providing a new "multilateral" benchmark agreement process for setting the terms and conditions for access to regulated telecommunications services.  The Act also provides an accounting separation regime for Telecom to assist regulatory oversight.

Local loop unbundling

The local loop is the wire running from your house or business to Telecom's local exchange often referred to as the "last mile".  The local loop is widely regarded as a natural monopoly because of the costs of duplicating a ubiquitous network in parallel to an existing network. 

Local loop unbundling means that telecommunications providers will be able to obtain access to Telecom's last mile network.  The Act provides the legislative framework for this to happen.  Included in this is a description of the "local loop" service which Telecom must provide access to and a description of the method for determining costs – access seekers will have to pay a price reflecting total service long-run incremental cost, which is a cost-based pricing methodology.

Importantly, the final access agreements will be set between Telecom and access seekers under the Telecommunications Act.  Another important amendment in the Act is the inclusion of a multilateral benchmark style service agreement process.  This allows the Commerce Commission to undertake a process to set standard terms of access to allow an access seeker to obtain a regulated service without the need for an agreement with Telecom.  This includes a standard price determination.

Accordingly, while the Act provides the framework for local loop unbundling to occur, until a standard terms agreement is in place, access seekers will not know the prices or terms on which they will be able to access the local loop.  This might well determine whether local loop unbundling delivers the benefits the Government expects it to. 

Accounting separation

While local loop unbundling was signalled in May this year, much of the interest and debate at the select committee level centred around decisions in relation to "splitting" Telecom's operating divisions.  The rationale for these provisions being a desire to limit Telecom's ability to use its vertical integration to disadvantage other non-integrated providers. 

When introduced, the Telecommunications Amendment Bill included a requirement for "accounting separation".  Telecom will be required to disclose information about its retail and wholesale business activities as if those activities were operated as independent companies.

However, the Select Committee recommended that the Act also includes a requirement that Telecom establish and operate functionally separate business units for fixed network access services - which would essentially provide access to the local loop, other wholesale businesses, and its retail business.

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