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Regulatory Update June 2017 – Final telecommunications reform package announced

Home Insights Regulatory Update June 2017 – Final telecommunications reform package announced

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Contributed by: Craig Shrive and Edward Bowie

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Published on: June 01, 2017

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Today Communications Minister Hon Simon Bridges announced the final details of the Government's reform package following its review of the Telecommunications Act 2001. The Minister has essentially confirmed the new regime for fixed lines services previously proposed by the Government, with a few modifications following recent consultation. 

Key aspects of the new regulatory framework for Ultra Fast Broadband (UFB) services include:

  • Introducing a new utility-style pricing framework based on Part 4 of the Commerce Act 1986, with the following features:
    • Price-quality regulation using the building blocks methodology, with the Commerce Commission being required to set a revenue cap (this could be changed to a price cap in the future);
    • Information disclosure regulation, which involves the Commission developing requirements for suppliers to disclose certain information about their regulated businesses; and
    • Input methodologies being set by the Commission, which are used to determine the revenue cap, and which also govern the way information is disclosed by regulated suppliers.
  • Both price-quality and information disclosure regulation will apply to Chorus from 1 January 2020 to reflect the scale of Chorus' fixed line business and the limited competition it faces. Local Fibre Companies will only be subject to information disclosure regulation from 1 January 2020 – but could become subject to price-quality regulation at any time if an 'intervention test' is met.
  • Asset valuation is a key, and typically contentious, input methodology. The Minister has confirmed that the legislation will provide direction to the Commission on the asset valuation method that should be used. For assets commissioned in or after 2011, the Commission will be required to value the assets on the basis of unrecovered historic costs incurred by the supplier. Changes announced today are:
    • Assets commissioned by Chorus before 2011 will be valued on the basis of depreciated historic costs obtained from its 2011 accounting statements;
    • The Commission will be prevented from reviewing the efficiency of costs of pre-2020 assets; and
    • The Government has also emphasised that replacement cost will not be an acceptable methodology. 
  • Suppliers subject to price-quality regulation will be required to offer price-capped anchor products within their networks. The Government has clarified that the policy intent for "anchor products" is to ensure that an entry level product is available at a reasonable price – and not to regulate the price of the "most popular product". It has therefore resisted calls to increase the quality of the anchor product and/or to allow the Commission to determine the product speed at the time regulation is introduced.

For copper services:

  • In areas where fibre is available, copper lines will be deregulated from 2020 and no longer subject to Telecommunications Service Obligations;
  • Where fibre is not available (such as in rural areas), copper lines will continue to be regulated and the Telecommunications Service Obligations will continue to apply. In these areas, the price of copper services will be set at 2019 levels, with CPI adjustments (the decision to include inflation adjustments is a new change announced today); and
  • A review of copper regulation will be conducted by the Commerce Commission by 2025. Possible outcomes could include, for example, complete de-regulation of copper, or re-regulation of copper within UFB areas.

The Minister also confirmed the Government's decisions on other aspects of telecommunications regulation, as follows:

  • In response to perceptions that there are competition challenges in the wholesale mobile market, the current statutory process for regulating, amending or deregulating a service will be streamlined by placing harder time constraint on the Commission, and giving it greater flexibility on the process to be used (eg it may decide not to hold a conference or public hearing). The Minister also intends to write to the Commission requesting that it undertake a study of the wholesale mobile market; and
  • In response to concerns about consumer complaints, amending the Commission's existing duty and powers to monitor markets to require it to specifically report on retail service quality.

The new regime is expected to be implemented from 2020, once most of the ultra-fast broadband build will be complete and the Government's current contractual arrangements for setting wholesale fibre prices fall away.  Legislation implementing the changes is currently being drafted, and could be introduced before Parliament rises for the election.

 


This publication is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.

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