NZ Gov't Forces Telco to Disclose Local Loop Costs

The New Zealand government made a significant move towards regulation of the telecommunications market last week, by announcing it will require Telecom New Zealand to provide separate financial accounts for its "local loop" business and to disclose the costs of complying with Kiwi Share obligations (KSOs).

The changes to the information disclosure regime are designed to give other companies more bargaining power in negotiating interconnection agreements with Telecom.

Communications Minister Maurice Williamson insists the changes "do not represent a departure from the current light-handed regulatory environment," but seek to make the current regime more effective.

Other telecom carriers, however, are likely to see this as a significant step toward the regulation they need for full competition.

"Anything that makes the disclosure rules more robust is welcome," says Clear Communications Public Affairs Manager Clayton Cosgrove, "as they've been inadequate to date. We've still to see how it'll pan out, but if we can get full disclosure things will be better."

WorldXChange Chief Executive Officer Steven Stanford says, "We've felt for a long time that Telecom was taking overly-generous margins, especially on interconnections, (so) we fully support the need for them to disclose more."

Looking at the reductions in interconnection costs over the past two years, "long distance agreement costs are down by 50 percent, but there's been no subsequent movement in the local area," he says.

The reason is the "competition in the international area". Whether these changes will be enough to increase competition remains to be seen, he says. "Let's wait and see what it provides. It'll be interesting to see how Telecom complies."

In addition to the separate financial statements and KSO cost disclosure, Telecom must now disclose information on its 0800 service and any documents relating to interconnection agreements.

International service costs need no longer be disclosed, because "international calls are now competitively provided," says Williamson in a faxed response to inquiries about the new rules.

The changes will come into effect on Jan. 1, 2000 and the first set of financial statements and KSO information will be available for firms negotiating interconnection agreements which will expire at the end of 2000.

Williamson says the changes, together with the Number Administration Deed and changes to the Commerce Act, "complete delivery on the three key issues I signaled some time ago."

While there has been considerable reduction in prices and improvement in services, "it's important to maintain this momentum," he says.

Telecom responded within hours of Williamson's announcement with a media release titled: "It ain't broke so don't fix it." The present competitive market is delivering quantifiable consumer benefits, says Telecom External Relations Manager Clive Litt.

"Neither the government nor the Labor party have established how their proposed changes will achieve their policy objectives of enhanced competition and further consumer benefits," he says.

"But the costs, in terms of chilling innovation and investment and promoting soft or inefficient competition, are far more certain."

Meeting the disclosure requirements, he claims, will cost Telecom millions of dollars a year, which is "not in New Zealand's interests."

Clear, however, says the changes are likely to be for the best. In most countries, says Cosgrove, "local service costs are decreasing (because of competition). Yet Telecom can raise its prices in line with inflation."

The answer to that is to unbundle the local loop and provide proper competition, he says.

"We're always being accused of being Muldoonist and wanting intervention but we're not. We're pro market -- it's Telecom that's anti-competitive."

Clear wants the basic policies necessary for competition to flourish, he says.

Not every telco is keen on deregulation, though. Teamtalk Managing Director David Ware describes the announcement as "a big yawn."

He can't see it making a great deal of difference "because we know how much things cost, really," so he can negotiate well enough.

This may be a first step toward more intervention by government, "but as a general rule we're happy with the way things are. Let's just get on and do what's important -- looking after our customers."

The telecommunications market isn't a level playing field, "but there's no point in using a crowbar to level it. Everyone involved came in with their eyes open and knew what they were taking on," he says.

Regulation may have some advantages, "but that's not how Teamtalk wants to play the game."

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