Operational Separation for Telecom

November 28th, 2006 at 11:50 am by David Farrar

The Telecommunications Amendment Act has been reported back by the Finance & Expenditure Select Committee, and it looks to be very good news.

The Committee was almost unanimous in endorsing, and improving the bill. MPs from Labour, National, NZ First, Maori, United Future and the Green Party all agreed on the report. ACT were, not surprisingly, against.

The major change is that the Select Committee has voted to impose a three-way operational split on Telecom into network, wholesale and retail arms. This is the British Telecom model, and something InternetNZ advocated in its submission.

This model should actually allow the market to work by putting in place the right incentives for Telecom at the network and wholesale levels.

Other aspects of the Bill are:
* A maximum $10 million fine for not complying with a separation undertaking
* UBS pricing principle remains retail minus
* Provision for competitive backhaul services between exchanges
* No structural separation option

In relation to structural separation, that is the one big thing missing which could have been useful. Having that as a reserve power would help with a genuine culture change at Telecom to make operational separation work. But hopefully it is unnecessary.

Also worth quoting the Select Committee on compensation:

“There are many precedents for this type of regulatory action when a company with market power is required to provide competitors with access to its network or faces controls over the prices it can charge. Moreover, Telecom will be paid a price based on the efficient costs of providing the unbundled local loop. The majority also noted that when Telecom shares were initially offered for sale the Government reserved the right introduce further regulation if effective competition did not emerge.”

This is quite right to my mind (I await being told by the Libertarianz I am out of my mind). A vertically integrated monopoly is that rare beast which should be regulated if competition is stymied. And the problem is that for over a decade Telecom has stymied effective competition. Eight years for number portability is a sad joke. The commercial UBS service was disastrously rolled out. Telecom frankly are lucky to have escaped action for so long. They got too cute at blocking effective competition, that the original reserve power of regulation became the only option.

Kudos to the Minister (David Cunliffe) and the Select Committee Chair (Shane Jones) for getting the bill to this point, and also to all the members of the select committee. As I said when I blogged about our oral submission back in September, there was some really excellent questioning and discussion from MPs indicating they really had done their homework on what can be a very complex area.

It should come up for second reading next week, and based on the select committee report should be passed by the House with a 119-2 vote.

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23 Responses to “Operational Separation for Telecom”

  1. Duncan Bayne () says:

    I’m actually surprised ACT opposed the further nationalization of Telecom.

    After all, Rodney supports the legalized confiscation of privately owned land to extend a rugby venue, so he’s clearly a wee bit confused over the issue of private property.

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  2. death knell () says:

    Private land?
    Wasn’t he talking about Auckland Domain?

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  3. Willie () says:

    Congratulations David, you should be very proud.

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  4. Juha () says:

    “I don’t know how the National Party and the United Future Party can have any credibility when they stand up and say they support property rights: they demonstrably don’t.”

    Wonder if Rodders will have the balls to campaign on restoring Telecom’s monopoly?

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  5. Michael (The Right Wing One) () says:

    Next they’ll have to regulate an amount of investment into the network. With Telecom going to be told a ‘fair’ price it can charge, every incentive will be into reducing costs to increase the margin.

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  6. death knell () says:

    Bit hard to put the fart back in the bag.

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  7. baxter () says:

    How much compensation is being paid to meet the costs of implementing organisational wreckage of and efficent private business. Will the same committee now inflict the same damage on the vertically integrated petroleum monopoly.

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  8. Hugh Hakawa () says:

    I think this is tremendous news and welcome your support for Telecom regulation. As such, I expect you would also lend your support for a proposal I have. That is, to unbundle your blog.

    To many in the blogosphere, it’s apparent that you have a monopoly on centre-right political blog readers. You know better than anyone how high your monthly viewer statistics are, and how much they reflect your the unfair advantage your monopoly gives you. Competitors, such as I wish to be, have little chance of attracting viewers under the current state of affairs. You have the connections and knowledge to gain blog-worthy information, the political experience to process it, and the expertise on the internet from your current position, making Kiwiblog that “rare beast” — a vertically integrated monopoly. I have little chance to compete with such skills and it is grossly unfair that you have the ability to stymie effective competition.

    I do realise that the qualities I mentioned are the result of hard-work and intellectual effort on your part, but the simple fact is that regulation is required for this situation to be remedied. I am still working through details, such as how best to unbundle your infrastructure to allow other bloggers access, and at how many millions of dollars the non-compliance fine should be set, but this should be completed soon and I hope to have political support for this soon, as well as your own.

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  9. James () says:

    First they came for the Telco’s, then they came for…..sigh!

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  10. Willie () says:

    Re Hugh – LOL

    I’m going round to a mates place tonight and I’m going to unbundle some of his beers. LMAO.

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  11. Juha () says:

    Oh, it’s a total disgrace. Communism and National Socialism rolled into one. Must make the Capitalist Freedom Fighters bristle with righteous wrath and actually do something apart from commenting on DPF’s blog.

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  12. iwikiwi () says:

    xtra broadband have dropped my speed by 130 mps on a constant log test , im speying as im paying $49 dollars to this ripof artists 1030 mps from 1230 plus

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  13. iwikiwi () says:

    xtra broadband have dropped my speed by 200 mps on a constant log test , im speying as im paying $49 dollars to this ripof artists 1030 mps from 1230 plus, FASTER BUT LESS

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  14. iwikiwi () says:

    xtra broadband have dropped my speed by 200 mps on a constant log test DSL, im speying as im paying $49 dollars to this ripof artists 1030 mps from 1230 plus, FASTER BUT LESS RIPOF TOSSERS

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  15. iwikiwi () says:

    xtra broadband have dropped my speed by 200 kps on a constant log test, DSL speed test 1030 kps from 1230 plus, FASTER BUT LESS RIPOF TOSSERS

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  16. Falafulu Fisi () says:

    David,

    It is not Telecom’s monopoly, that prompted your campaign against them. You saw an opportunity to lobby for legislation that in the the end if implemented, which it is now, would give you cheap internet services. Isn’t it David?

    Don’t argue, that it is the speed of the service (uploading & downloading) by Telecom is why they needed to be penalized, because this super-speed service demanded by the likes of you and others (Ihug, CallPlus, etc,…) is ONLY possible if conventional fibre-optics are installed nationwide or perhaps go for the more expansive option the hyper-speed fibre-optic networks (non-conventional) which is many folds faster than the standard conventional fibre-optic communication network, ie, it could reach upto 100 Gigabits/s or more. Now, tell me, if Telecom will have any incentive at all to invest in such hyper-speed fibre-optic communication network, while they see this legislation as handing their property rights to the leechers (Ihug, CallPlus, etc,…) to suck from for free?

    Here is a fact. Telecom will never ever voluntarily install a hyper-speed fibre-optic communication network at all in the future. When competition is eliminated by way of legislation, there is less incentive for them to invest in network infra-structures. This means that NZ will stuck with copper for the next 30 or 40 years and the internet service speed wouldn’t improve any further from the current capacity, because copper has reached its limits and can’t be pushed any further.

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  17. David Farrar () says:

    I can say that personal motivation for cheaper Internet is not a factor for me personally. I earn enough money that what I spend on Internet access in not an issue. What is an issue is the inability to get products and services I want, regardless of price.

    I disagree this will leave us stuck on copper. QUite the opposite. The Telecom network division will now be mandated to not just plan the network for Telecom’s needs, but for the industry. And laying fibre to the node and eventually to the home should occur even faster, as there will be more wholesale and retail customers wanting it.

    And anyone who makes iditioc statements that ISPs will leech for free off Telecom shouldn’t be in this debate. ISPs will be paying money to Telecom for network access at a rate which is profitable for Telecom. Sure it won’t be as much as Telecom could charge as an unregulated monopoly but that is the prupose of regulating monopolies.

    And as for the amusing but wrong analogy to my blog, I would point out I in no way can or have block access to new blogs plus I provide more links to other blogs than almost anyone.

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  18. TIC () says:

    “Congratulations” (LOL). In one fell swoop Labour gets to implement its agenda of kneecapping Telecom (very convenient), after all Telecom or Rod Deane is supposed to be a National Party big donor.

    As I wrote in
    http://thisischristchurch.blogspot.com/2006/11/government-moves-to-castrate-telecom.html
    The drive to split Telecom has come from the PM who had some sort of falling out with Gattung or so it was alleged. Helengrad seizes the chance to break up Telecom. It is the PM’s office which is driving this policy move.

    After all Labour is the most anti business government in 30 years. They nationalised ACC; they nationalised Air NZ; they try to nationalise Tranz Rail and when they couldn’t do that they try to force Toll Holdings out of the NZ rail market; they’re forcing PTEs out of the education sector; they introduce record levels of bureacracy and red tape for small businesses; and now they’ve got a perfect opportunity to batter Telecom.

    Can you prove categorically that you either opposed the privatisation of Telecom outright or opposed the sale of the Telecom lines network to Telecom as part of a single package back in the late 80s?

    The government’s agenda is ultimately to force Telecom to sell the lines network back at a bargain basement price.

    Very simplistic comment: Liberals are anathema to any good party; even more so on the political right.

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  19. TIC () says:

    “Congratulations” (LOL). In one fell swoop Labour gets to implement its agenda of kneecapping Telecom (very convenient), after all Telecom or Rod Deane is supposed to be a National Party big donor.

    As I wrote in
    http://thisischristchurch.blogspot.com/2006/11/government-moves-to-castrate-telecom.html
    The drive to split Telecom has come from the PM who had some sort of falling out with Gattung or so it was alleged. Helengrad seizes the chance to break up Telecom. It is the PM’s office which is driving this policy move.

    After all Labour is the most anti business government in 30 years. They nationalised ACC; they nationalised Air NZ; they try to nationalise Tranz Rail and when they couldn’t do that they try to force Toll Holdings out of the NZ rail market; they’re forcing PTEs out of the education sector; they introduce record levels of bureacracy and red tape for small businesses; and now they’ve got a perfect opportunity to batter Telecom.

    Can you prove categorically that you either opposed the privatisation of Telecom outright or opposed the sale of the Telecom lines network to Telecom as part of a single package back in the late 80s?

    The government’s agenda is ultimately to force Telecom to sell the lines network back at a bargain basement price.

    Very simplistic comment: Liberals are anathema to any good party; even more so on the political right.

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  20. Falafulu Fisi () says:

    Falafulu Fisi said…
    [...perhaps go for the more expensive option the hyper-speed fibre-optic networks (non-conventional) which could reach upto 100 Gigabits/s or more.]

    The following paper summarizes the recent advances in the field of Photonics (as in optical communication systems). This hyper-speed network (soliton multiplexing) as I quoted in my previous post has been commercially available within the last 5 years or so. Transmission speed of upto Terrabits/second was first realised by R&D team at Telecom France in 1998.

    “Progress in Ultrafast Photonics”
    http://www.aapps.org/archive/bulletin/vol16/16-2/16_2_p23p39.pdf

    David Farrar said…
    [The Telecom network division will now be mandated to not just plan the network for Telecom's needs, but for the industry.]

    David, but that mandate will force Telecom to do nothing (don’t plan anything at all) which is exactly what I have pointed out in my previous post. Telecom will STOP altogether doing any plan at all. They will sit idle and let the current network infra-structures wear out or going rusty without any planning or development.

    David Farrar said…
    [And laying fibre to the node and eventually to the home should occur even faster, as there will be more wholesale and retail customers wanting it.]

    Now, perhaps you mean the conventional fibre, which is cheap per unit metre, but the kind of speed described in the paper quoted above does use a non-conventional type of fibre (soliton fibre), which is VERY expensive. It used to be $64 US per mitre about 4 years ago. I assume the price has come down. Now, laying fibre to the node is not going to solve the speed problem using non-conventional fibre. The network has to be ALL fibre, and no copper should be involve anywhere in the transmission lines. Copper will destroy the type of high-bandwidth pulses that only transmit via the non-conventional fibre. So, this means that either the network should be ALL fibre (non-conventional) to achieve the sort of hyper-speed transmission speed described previously or stick with fibre-copper hybrid, ie, fibre only to the node and the national transmission lines network be all copper.

    Again, in this scenario WE are still stuck with copper as I have mentioned in my previous post. Either TELECOM will install a nationwide non-conventional fibre network, which is very expensive ($64 US per mitre), where customers will be charged a huge price for this type of services. This defeats the purpose of the legislation to allow competition, therefore lowering the price. The price will only come down, IF Telecom’s competitors, do install their own hyper-speed fibre network to compete with Telecom therefore forcing the prices down, instead of them lobbying for legislation & whinging.

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  21. Pacific Empire () says:

    Uh, DPF?

    You’re out of your mind.

    :-)

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  22. David Farrar () says:

    Pacific Empire :-)

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  23. libertyscott () says:

    “I would point out I in no way can or have block access to new blogs plus I provide more links to other blogs than almost anyone.”

    Yes, that is a mitigating circumstance in the forthcoming legal case for unbundling this blog ;-) (is it Darnton vs. Farrar?? heh).

    and Telecom has never been an unregulated monopoly. It has always been regulated by the Commerce Act, recently substantially strengthened. However its competitors have found it far more profitable to lobby politicians than to hire lawyers to put up a genuine case. The fact that they don’t speaks volumes about the economic benefits lobbying presents to businesses nowadays.

    It is utter nonsense to claim it has “a monopoly”. It has only half of the mobile phone market at best, around a third of the national and international call market is held by competitors (and these used to be lucrative). Even at the localised level, one third of Wellington residential homes use TelstraClear and over 50% of Kapiti ones.

    I know you’re internet focused, which is not surprising, but this entire company is not just about that. The longer term impacts on infrastructure investment are considerable, as it now locks in an infrastructure monopoly for part of the market.

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