Government's decision to unbundle the local loop now before Parliament

The Government has introduced the Telecommunications Amendment Bill, which implements its decision to unbundle Telecom's local loop. However, the Bill will also amend the Telecommunications Act in other important ways consequent on the Ministry of Economic Development implementation review of the Telecommunications Act.

Unbundling the local loop

Local loop unbundling is the most publicised amendment proposed in the new Bill. From a legislative perspective, unbundling the local loop is a very simple process of amending Schedule 1 of the Telecommunications Act by adding local loop unbundling (and ancillary services) to the list of designated services. The effect of this amendment would be that Telecom would be obliged to provide an access seeker with access to its local loop in accordance with specified standard access principles and at an initial price calculated by benchmarking the price paid for access in other countries, and, in the long run, a price based on total system long run incremental cost (TSLRIC) essentially a cost-based pricing formula.

Greater incentive to reach commercial agreement in a timely fashion

Currently, an access seeker can only apply to the Commerce Commission for a determination of a dispute if it can satisfy the Commission that:

• it does not have an agreement for supply in place; and



• it has made reasonable attempts to negotiate a commercial agreement for supply of the service.

Many access seekers complained that this requirement had two effects:

• It left the access seeker to choose between the lesser of two evils: accept an early commercial offer on inferior terms to a Commission determination; or seek to negotiate a better agreement or seek a determination, thereby delaying entry.



• Because the process was only bilateral, smaller access seekers complained that they could not rely on a Commission determination to enter the market quickly.

The Bill proposes the removal of the requirement of no existing supply agreement. This amendment is designed to provide an access provider with greater incentives to agree a commercial solution that reflects Commission determinations.

Standard access determinations

However, more importantly especially in relation to the quick diffusion of the benefits of local loop unbundling the Bill proposes the introduction of standard access determinations. This process will allow the Commission to unilaterally commence a process to set the standard terms and conditions for a regulated service. This is an alternative to resolving numerous bilateral disputes. In practice, with respect to the local loop, the process (if initiated by the Commission) will require the Commission to request Telecom to submit a standard terms proposal and then consult with interested parties on that proposal and issue a determination.

Once a determination is issued, access seekers will be able to require Telecom to provide access to its local loop on the basis set out in the determination or, alternatively, seek to negotiate an alternative arrangement.

Such standard term determinations or reference offer arrangements are used in a number of other countries, notably, the United Kingdom, Singapore and Switzerland. The ACCC also has a similar power in Australia.

Commission and Government to take a more hands-on role

The Bill proposes that the Commission would be empowered to continually monitor the performance and development of the telecommunications sector and requires the Commission to have regard to statements of Government policy.

Given the Commission's already onerous tasks under the Bill and its current ability under the Act to institute a Schedule 3 investigation into whether or not any telecommunications service should be subject to the provisions of the Act (e.g. the Commission's Mobile Termination Rate Investigation was a Schedule 3 investigation), it is not clear what impact its new monitoring role will have in practice. Likewise, the requirement to "have regard to" statements of Government policy is likely to have little practical impact. This has certainly been the experience with the similar requirement in section 26 of the Commerce Act following the decision of Justice Wylie in the High Court that the Commission must have regard to, but is not bound by, such policy statements.

Formal undertakings process

During the Mobile Termination Rate inquiry both Telecom and Vodafone submitted undertakings to the Commission stating that they would voluntarily lower their mobile termination rates as an alternative to regulation. The fact that the Act provides no formal process for the Commission to consider and accept undertakings has been criticised.

The Bill sets out in a new Schedule 3A a formal process for the Commission to follow if it is to accept undertakings. Under the proposed process, an access seeker can submit an undertaking within 40 working days of the Commission giving notice that it is conducting an investigation into whether or not to recommend a service be regulated. If accepted, undertakings would be registered and the Commission or a third party would be able to enforce that undertaking in the High Court.

Enforcement

The Bill also seeks to enhance incentives for participants to comply with the Act by allowing the Commission to apply to the High Court for pecuniary penalties if a participant has breached certain provisions of the Act.

Specifically, Telecom will be required under the Bill to separate its accounts for wholesale and retail arms so as to promote transparency and assist the Commission and other parties in assessing whether it is complying with its non-discrimination obligations. Indeed, Telecom has moved one step further setting up separate wholesale and retail divisions within its business (although this would not preclude the Government from legislating for business separation at a later date.

 

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