A new regulatory framework for the ICT sector
The Telecommunications (New Regulatory Framework) Amendment Bill establishes a new regulatory framework for the information and communications technology (ICT) sector.
A new regulatory regime
After a comprehensive review of the Telecommunications Act 2001, Parliament has enacted the Telecommunications (New Regulatory Framework) Amendment Bill.
The new Bill provides a stable platform to better protect consumers and further enhance New Zealand's connectivity in the new fibre environment.
The Bill establishes a regulatory framework that:
- provides stable and predictable regulation for Ultra-Fast Broadband (UFB) fibre
- removes regulation of copper lines where fibre is available
- streamlines regulatory processes to enable a rapid response to competition problems, particularly in the mobile communications market
- includes measures that will improve the quality of services for consumers by increasing regulatory oversight.
The regulatory framework will:
- support long-term investment in New Zealand’s telecommunications infrastructure.
- ensure telecommunications services are provided at competitive prices, and that providers respond to consumer demands for quality.
The new Telecommunications Act requires the Commerce Commission to implement the new regulatory regime by 1 January 2022. In November 2018, the Commission was granted this 2-year extension as permitted under the Bill.
About the review
The new regulatory framework was designed following a mandated review of the previous framework for regulating telecommunications services in New Zealand under section 157AA of the Telecommunications Act 2001.
This review was conducted between 2013 and June 2017, with consultation taking place through discussion documents, options papers and final policy design papers.
Why the changes are necessary
The new regulatory framework is the outcome of a statutory review of the Telecommunications Act.
In 2011, Telecom (now Spark) and Chorus were structurally separated into 2 companies. This structural change, combined with the Government’s UFB programme, meant it was the right time to bring New Zealand’s telecommunications regulatory framework into the 21st century.
Most of the UFB build will be complete by 2020, and the Government’s current contractual arrangements for setting wholesale fibre prices will fall away. At the same time, New Zealanders’ demands for new services and capabilities continue to grow.
The changes we have seen in technology and market structure need to be supported by a flexible and responsive regulatory regime.
How the framework for UFB and copper will work
The new regime will ensure UFB providers cannot make excess profits at the expense of consumers. It will also ensure they can expect reasonable rates of return and incentives for ongoing investment.
The Bill provides that:
- all UFB providers will have to disclose information about their revenues and costs publicly
- Chorus will also be subject to a revenue cap
- local fibre companies will face competition from copper and cable, but can be regulated if problems arise.
A clear value will be set for regulated assets at the outset, with a predictable process for updating this over time. There will also be a clear process for approval in advance of new investments, similar to that which applies to the electricity grid operator Transpower.
Chorus will be required to supply price-regulated anchor products. These will initially be an entry-level broadband product (100/20Mbps) and a voice-only product.
The Commerce Commission will be required to:
- set clear rules (‘input methodologies’) that outline its approach to how assets will be valued and costs recovered
- smooth the impact of changes in regulatory settings to avoid price or revenue volatility.
How the Bill streamlines regulatory processes
The Bill aims to encourage more competition in the mobile market through streamlining regulatory processes for Commerce Commission investigations.
Schedule 3 of the Telecommunications Act sets out the procedure for regulating or deregulating relevant services.
The Bill amends the Schedule 3 process to:
- enable the Commission to intervene more quickly when issues are identified
- further encourage commercial settlements as an alternative to regulation.
Specific proposals to streamline processes
- imposes a ‘hard’ deadline for the Commerce Commission to complete its investigation and recommend to the Minister for Communications whether or not to regulate services within 240 working days (or 120 working days for investigations in to upgrading an existing service)
- makes the requirement to hold conferences and public hearings optional (at the Commerce Commission’s discretion)
- while telecommunications operators may lodge undertakings to avoid conventional price regulation by the Commerce Commission, the Bill provides for a ‘one shot’ process (ie, only allowing a single undertaking to be tabled rather than successive, incrementally improved undertakings that can drag out the process)
- provides the Commerce Commission with the power to propose a single-stage pricing process when recommending regulation to the Minister for Communications (instead of a 2-stage process involving first international benchmarking and then cost modelling).
Changes in the Bill to improve retail service quality for consumers
Recent surveys of consumers (such as the New Zealand National Consumer Survey 2016) suggest that outcomes for telecommunications consumers are not satisfactory.
To lift consumer service quality across the sector and improve responsiveness to consumer needs, the Government is augmenting consumer safeguards and providing more regulatory oversight of retail quality standards and dispute resolution processes.
- requires the Commerce Commission to collect and report on the quality of retail service delivery in a way that is more accessible to consumers
- enables the establishment of regulatory codes to improve retail service quality, if industry self-regulation is inadequate.
- provides for the Commerce Commission to periodically review the existing consumer Telecommunications Disputes Resolution Scheme.
Future review of the new system
The Commerce Commission will be required to review the pricing framework for copper services (no later than 2025) to ensure the new system remains fit for purpose.
After 2023, the Commission can recommend to the Minister for Communications that:
- unbundled fibre services should be price-capped
- the Direct Fibre Access Service should be adjusted
- anchor product prices should become purely cost-based
- the form of control should change from a revenue cap to ‘price caps’ (where all services provided by a supplier are subject to price caps set by the Commission).
Regulating the price of unbundled fibre products
From 2020, Chorus and the local fibre companies are already required under their open access deeds to offer an unbundled mass-market fibre service on commercial terms.
Under the new framework, the Commission can investigate after 2023 whether the unbundled fibre service should be regulated. It can then recommend to the Minister for Communications that price caps should be introduced for the product, together with technical specifications and conditions for the service.
Bill's proposals in detail
- provides for the development of a new utility regulation framework for fibre fixed line access services from 2020
- deregulates copper fixed line access services in areas where fibre services are available to consumers, while retaining regulation in areas where fibre is not available
- puts in place consumer safeguards when copper services are to be withdrawn
- streamlines the process for recommending regulation of services in Schedule 3 of the Act
- requires the Commerce Commission to undertake retail service quality monitoring
- provides more regulatory oversight of retail service quality, associated consumer codes and dispute resolution processes in the telecommunications sector
- provides for technical revisions to the Telecommunications Regulatory Levy. These changes provide consistency with the levy arrangements for utility regulation under the Commerce Act
- removes line of business restrictions for Chorus that do not add to prohibition on participation in retail, which remain in place
- repeals unused, unnecessary or expired provisions, and updates organisational references.
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