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Credibility of ComCom in question - 2degrees

10 Mar 2010

2degrees claims the credibility of the Commerce Commission has been drawn into question following its recommendation that mobile termination rates not be regulated.

In a hard-hitting 10-point submission by 2degrees chief commercial officer Bill McCabe, the company claims that the recommendation is “deeply damaging to both consumers and the industry. The credibility of the Commission is in question and we believe it is ‘now or never’ for the future health of this essential industry.”

The Commerce Commission recommended against MTRs – the fees mobile telcos pay each other to terminate traffic on their networks – last month. It was a split decision with Telecommunications Commissioner Ross Patterson and Commissioner Gowan Pickering in favour of accepting commercial undertakings by Vodafone and Telecom, and Commissioner Anita Mazzoleni in favour of regulation. ICT Minister Steven Joyce immediately called for submissions to the recommendation, which closed on Monday.

The case against Commission's recommendation

2degrees claims that New Zealand has some of the highest retail prices and lowest usage in the OECD and that it will stand alongside Mexico as the only country in the OECD not to regulate termination rates (evoking memories among telco watchers of the LLU debate, when NZ and Mexico were the only countries not to have unbundled and the then-Telco Commissioner Douglas Webb recommended against regulation).

In a letter to the Minister, McCabe sounds a strong warning: “The Commerce Commission fails to grasp that their Recommendation could conceivably, given recent issues with XT, and the strength of the network effect (on-net/off-net retail price differentials), confine New Zealanders to a monopoly of one operator before the five year lock down period envisaged under the undertakings comes to an end.”

In the TUANZ submission, CEO Ernie Newman recommends that the Minister either ignore the Commission’s recommendation and regulate anyway, or refer the recommendation back to the Commission for further consideration.

Newman claims that accepting Vodafone’s and Telecom’s revised undertakings will legitimise ongoing market distortions. For example Vodafone is dominant in the Auckland but has a much lower market share in the South Island, so many users are “effectively compelled to follow the lead of their friends, workmates or fellow students. If they don’t, excessive off-net prices mean they risk having people reluctant to call or txt them, at the cost of social exclusion,” he writes.

In a press release this afternoon, Labour's ICT spokesperson Clare Curran backs the call for regulation: "While Vodafone and Telecom have now offered to lower termination rates by around 80%, it still does not go far enough to reduce the major issues for new entrants... it is clear that a voluntary agreement will keep the rates considerably higher than they would be under a regulated outcome."

The case for Commision's recommendation

Meanwhile Telecom in its submission supports the Commerce Commission’s recommendation. In a letter to the Minister, group general counsel Tristan Gilbertson claims the undertakings put forward by Vodafone and Telecom will benefit users, access seekers, new entrants and the industry. “Overall, in the Commission’s own analysis, our Undertakings would yield 78%-99% of the consumer surplus benefits of regulation, but at lower cost to the industry,” he writes.

Gilbertson claims that regulation would not improve competitive outcomes. “We do not believe that a move to more extreme reductions in MTRs would significantly improve competitive outcomes in markets. The link between on net and off net price differentiation, MTR rates and ability to overcome switching barriers is only partial at best.”

Vodafone spokesperson Paul Brislen says the company is unable to make public its submission, as that is up to ICT Minister Steven Joyce. However, he emailed the following comment to TR: “We fully support the Commission’s recommendations. Any advantages delivered through full regulation are negated by the lengthy wait period that will kick off if the Minister sends the decision back for more work. Last time it took eight months to get a follow up decision. If that decision is to regulate we have the full STD process to follow which could take a year. Assuming the regulation kicks in immediately the savings are likely to be very similar to what’s on the table via the undertakings.”

Minister's decision

According to a statement made on 22 February ICT Minister Steven Joyce is expected to make a decision without seeking cross-submissions: "I will make a decision upon consideration of the report, submissions, and advice from officials.  It is my intention to do this in a timely manner."