Commerce Commission commences standard terms process

A further update from senior associate David Blacktop on the latest steps in the transformation of the telecommunications sector

The process of determining the terms on which Telecom will be required to provide access to its unbundling local loop network is now well underway. On 31 July 2007, the Commerce Commission issued its draft decision - the decision being the first from new Commissioner Dr Ross Patterson.

Process is an improvement

The standard terms process under which these terms will be set by the Commission is a new process, which was enabled by amendments to the Telecommunications Act passed at the same time as the Government mandated unbundling of the local loop. In essence, the standard terms process provides a benchmark agreement that all telecommunications companies can use to obtain access to Telecom's local loop. A similar "standard terms" determination process is currently being undertaken in the electricity industry with the Electricity Commission finalising the arrangements surrounding benchmark transmission agreements and transmission pricing.

Prior to the amendments to the Telecommunications Act to enable standard terms determinations, parties seeking access to the local loop would have been required to enter into bilateral negotiations with Telecom. Parties would only have been entitled to seek a determination from the Commission if there was a dispute and the parties had made reasonable attempts to reach agreement.

Such a process in respect of local loop unbundling would have been cumbersome and could have introduced opportunities for regulatory gaming and delay. While there will be no doubt be grizzles from industry participants about the precise terms set by the Commission, the benefit of the process is that a decision will be made by late this year.

Key points of the draft determination

The key aspect of the draft determination is the prices set. These prices were set taking into account international benchmarks. The draft distinguishes between "urban areas" where Telecom can charge $16.49 per month and "rural areas" where the charge is $32.20 per month. The major justification for the difference appears to be the economies of scope implicit in more densely populated areas. At first blush, the pricing suggests that new entry and hence the benefits of unbundling are more likely to occur in urban areas.

Next steps

Parties had until 29 August 2007 to provide submissions on the draft. A final decision is expected in November or December 2007.

Enquiries and information

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