The proposed TDL will commence 2010/2011 and will average at no more than $50 million per annum (which is $20 million less than the current TSO) for the first six years and decrease thereafter to no more than $10 million per annum.

That money will be form part of the $300 million rural fund for broadband that ICT Minister Steven Joyce announced last month.

Under the proposal, the government will contribute $48 million and another $52 million would be ‘borrowed’ from the Ultra Fast Broadband initiative. This $52 million would be returned to the government however, as funding from the new TSO levy becomes available.

Monies from service providers will be based on revenues of each provider, which is the current criteria for the TSO, but with a redefinition of ‘liable persons’ “to identify levy payers to strengthen technology independence,” reads the document released today.

The proposed new levy has been introduced for a number of reasons. The Minister says that there is a lack of transparency around where the money Telecom receives is spent and questions whether rural customers are really benefiting from the current TSO.

“A recent review of the TSO had identified that the current methodology for assessing how much the TSO commitment was costing Telecom a year was flawed,” he says.

Under today’s proposal, revenues collected by the new levy would still be available to pay TSO charges, make grants to improve the emergency calling system and grants to assist with rural infrastructure.

The government’s objectives for TSO reforms are to ensure that funds are spent effectively, improve transparency of TSO compensation arrangements, minimise compliance requirements for service providers, create technology independence and to minimise discrimination.

Taking a hard line on Telecom, the government document released today questions the real number of commercially non-viable customers that Telecom serves. The Commerce Commission has determined there that are around 58,000 telephone access lines (around five per cent of total lines), which are deemed commercially non-viable and accrue a net cost to Telecom.

The government believes that Telecom’s TSO loss under the new proposal is expected to be zero “for the foreseeable future”. Under the new proposal however, Telecom will have to pay the bulk of the industry funding.

The TDL would also cut out red tape and administration costs currently incurred by the government. The Commission estimates that it spends around $600,000 per annum on administering the TSO.

To make the new process more efficient, the government proposes that Telecom would only apply for a TSO charge assessment when it considers its local service profits are becoming impaired to such an extent that it is eligible for TSO compensation.

While Telecom would be free to request a charge assessment, the government is proposing a system that should keep requests at a minimum. If Telecom made a case and the TSO charge is calculated at zero, then Telecom would have to reimburse the Crown.