IT Brief New Zealand - Technology news for CIOs & IT decision-makers
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Rethink urged on telco regulation
Tue, 4th May 2010
FYI, this story is more than a year old

Former deputy chair of UK regulator Ofcom Richard Hooper querieshow New Zealand's government agencies will work together as they rethink NZ's telco regulationin the fibre world.

Hooper, who was in New Zealand last week, gave a lecture atan event “ghost hosted” for Telecom by law firm Chapman Tripp in Wellington.It was attended by around 25 people including representatives from the MED,Treasury, Parliament, Commerce Commission, NZ Post, Vector and other energycompanies.

Hooper has been advising Telecom for the past three years,however he claimed his comments represent a personal view. In a transcriptobtained by Telecommunications ReviewHooper alludes to a fractious relationship between the regulator and governmentagencies.

“Sometimes I have felt that relationships between theMinistry of Economic Development and the Commerce Commission could have beenmore mutually helpful. This may be because the different parties (MED, CommerceCommission, Telecoms Commissioner) are not sufficiently clarified. Do thedifferent parties talk to each other enough or do they too often end up doingtheir own thing?”

Hooper suggests that with the advent of the Crown FibreHoldings there is an opportunity to rethink the way telco is regulated, and hehighlights the complication of the having six organisations (Telecom, MED,Commerce Commission, Telecoms Commissioner, Crown Fibre Holdings and IndependentOversight Group) involved in the national broadband network.

Hooper was deputy chair at Ofcom during the negotiationswith British Telecom to operationally separate its business into threedivisions – a model which New Zealand closely followed and in which Telecom’scurrent CEO Paul Reynolds (who came from British Telecom) was a key player. Inthe lecture, Hooper claims that New Zealand’s operational separationundertakings “have a rushed, punitive air to them”. (Reynolds expressed asimilar opinion to TR last year).

“From what I have seen inside Telecom it is creaking at theseams trying to comply with each and every word on the 167 pages of theUndertakings and each and every enquiry from the Independent Oversight Group (akind of internal Telecom watchdog) and the Commerce Commission,” Hooper says.

According to Hooper, Telecom could get a break on theundertakings for Telecom’s Wholesale and Retail divisions if Chorus agreed to allowits competitors access to its dark fibre. Currently only the copper network isregulated, and from its inception Chorus has refused to sell access to its fibrenetwork.

“Telecom for its part should demonstrate it can be trustedby agreeing to require Chorus to provide competitors who want it, access todark fibre,” says Hooper. “Access to dark fibre is a key part of the Government’splans for the LFCs. In addition Chorus should, as BT is now offering in the UK,provide its competitors access to ducts and aerials to lay their own fibre.”

Google rules

Hooper sounds a warning that the profits fromtelecommunications may flow offshore to companies providing services on “theedges of the network”.

“Telecom, Telstra, BT are in danger of being left high anddry as highly regulated, price controlled, low-margin, dumb pipe providers,whilst Google dominates the world market for search advertising (search engineoptimisation and search engine marketing) and is neither ex-ante regulated norprice controlled.”

Merits-based appeals

Hooper raises the idea of a merits-based appeals whicheffectively holds up regulators to greater scrutiny. He says they are “muchbroader than judicial reviews allowing the regulator’s decision itself to bequestioned not just the regulators’ process of reaching that decision.”

It’s an idea that Reynolds canvassed last year, telling TR that a merits-based review is thereto ensure transparency in the regulators decision making and that “they hardlyever get used”.

But Hooper says that there is a view that merits-basedappeals can be a one-way bet. “A competitor, or BT itself, can appeal against aBT price control decision by the regulator, knowing that the legal costs of £3/4million will be minor compared with the potential financial benefit of £30/40millions flowing from winning the appeal.”


Definitions in the Fibreto the Home world

Layer 1 – the ducts and cables - this is where thegovernment is directly investing its $1.5 billion in partnerships with privateinvestors to form Local Fibre Cos. This is open access so that LFCs must sellaccess to all service providers at the same price.

Layer 2 – the electronics that light the fibre. Thegovernment’s LFC partners are allowed to be Layer 2 operators, but they willhave to fund the services themselves. Other companies may also provide Layer 2services, and this is where Hooper believes the greatest level of regulationwill be required because there is more money to be made selling an activeproduct than a passive product.

Layer 3 – the services run over the fibre such as voice,data, video. The government’s LFC partners are not allowed to provide these services.This is where the difficulty for Telecom lies, as it will want to participate atevery layer, but is prohibited from doing so. Recently Reynolds hinted thatthere is a new willingness by Telecom to consider selling part or all ofChorus. This is the advantage Vector and the lines companies have – as they don’tprovide layer 3 services and claim they have experience in working in a highlyregulated industry (see Q and A with Vector CEO Simon Mackenzie in the Mayedition of TR).