Regulatory Update – August 2017

Home Insights Regulatory Update – August 2017

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Contributed by: Craig Shrive, Edward Bowie and Felicity Ellis

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Published on: August 08, 2017


Telecommunications (New Regulatory Framework) Amendment Bill Introduced to Parliament

Today, Communications Minister Hon Simon Bridges introduced the Telecommunications (New Regulatory Framework) Amendment Bill (Bill) into Parliament.

The Bill is the outcome of a two year review of the Telecommunications Act 2001 (Act).  The Act required the Communications Minister to review the policy framework for regulating telecommunications services in New Zealand in advance of the contracts between Crown Fibre Holdings and UFB service providers (Chorus and local fibre companies) expiring in 2020 (those contracts control pricing of UFB services).  The Bill (and new regulations to be made under the Bill) will largely confirm the reform package announced by Minister Bridges in June 2017.  Essentially, the intention is for Chorus to be subject to price-quality control and information disclosure; local fibre companies to be subject to information disclosure only; and copper to be deregulated in fibre roll-out areas (with copper products in non-fibre areas restricted to increase at the rate of inflation).

The regulatory framework in the Bill largely replicates Part 4 of the Commerce Act, which currently applies to electricity and gas networks, and the three largest international airports.  However, some unique aspects of the new framework will likely attract attention during the parliamentary process:

  • Anchor services for Chorus
    • The Bill establishes a Commerce Commission (Commission) review process to allow recommendations on anchor services and prices to be prescribed by regulations.
    • An anchor service is a broadband product that has the purpose of influencing the price of other broadband products – within the overall revenue cap to be set by the Commission.
    • As it stands, the anchor service speed will not be set until regulations under the Bill are made (following a Commission review). However, based on prior statements from the Government, some industry participants contend that the Government intends a service that is too slow for this purpose.  The Government's intention is for the anchor product to be an "entry level product". 
  • Regulated Asset Base
    • Asset valuation is a critical input methodology for both price control and information disclosure.  Section 176 of the Bill provides direction to the Commission on the asset valuation method that should be used.
    • For fibre investment prior to 1 December 2011, the initial value is that recorded by Chorus for the fibre asset in its published financial statements. For investment since 2011, the initial value of a fibre asset is its depreciated actual cost.

In order to encourage further competition in the market, the Bill streamlines the process for investigations undertaken by the Commission. It amends Schedule 3 of the Act to facilitate a prompt intervention by the Commission, and to provide for commercial settlement as a substitute for regulation.

More specifically, this means that:

  • The Commission will face a 'hard' deadline (240 working days) to complete its investigation and advise the Minister as to whether to regulate services;
  • The Commission will have discretion as to whether a public hearing is required;
  • Telecommunications operators who wish to lodge an undertaking to avoid Part 4 regulation will only have 'one-shot' to apply (so as not to lengthen the process); and
  • The Commission will have the power to propose a single stage pricing process when recommending regulation to the Minister.

The Bill also introduces a number of regulatory changes to protect consumers in the telecommunications sector. Of particular note are provisions which:

  • Require the Commission to regularly report on retail service quality in a more accessible way;
  • Enable the Commission to make codes that address retail service quality, if the industry bodies fail to achieve this themselves; and
  • Require the Telecommunications Dispute Resolution Service to be reviewed regularly to ensure it is working effectively.

The Bill is set down for its first reading this month and the Government intends to refer the Bill to the Commerce Select Committee for public submissions following the formation of a new Parliament after September's General Election. As a result, the content of the Bill could change depending on the formation of the next Government. Following enactment of the Bill, the Commission will be required to embark on a further process of consultation and development of regulatory requirements, including input methodologies. As with Part 4, input methodologies are subject to a merits review in the High Court.

More information on the Bill, including discussion documents, policy papers and a link to the draft bill is available here.

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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