RESPONSE ON 0867 & KIWISHARE

from the Hon. Maurice Williamson, Minister for Information Technology, to The Internet Society of New Zealand, 5 October 1999

Dear Mr Higgins

RESPONSE ON 0867 & KIWISHARE

I thank you for your correspondence of 2 July in respect of Telecom's 0867 Internet initiative, and in particular the constructive steps that ISOCNZ took to work through and clarify the issues with Telecom.

I apologise for the length of time it has taken for me to reply to your correspondence. However, as you will no doubt understand, the 0867 initiative raised complex issues that have taken some time for the Government to consider.

Telecom's 0867 Internet Initiative

As you are aware, Telecom approached the Government in June 1999 to outline the problems it said it was experiencing in managing the growth in demand for access to the Internet. In particular, Telecom said it was becoming increasingly concerned about the potential impact of the large volumes of Internet traffic on the integrity of the voice network. For example, calls to Internet service providers (ISPS) currently amount to about 23% of Telecom residential user local telephone traffic (up from 16% one year ago) and Telecom forecasts this to increase to 35-40% of residential local telephone traffic within the next three years.

To better protect the voice telephone network from the large volumes of Internet traffic, Telecom said that it would introduce an 0867 access service for use in making calls to ISPs for the purpose of accessing the Internet. Telecom said that this would enable it to efficiently manage 0867 traffic. To implement the 0867 access service, Telecom said that the following arrangements would apply:

1. local calls to ISPs on 0867 based numbers would be free to users of Telecom's standard residential telephone service option, maintaining residential telephone users free calling to Internet access services;
2. Telecom would introduce a charge of 2 cents per minute (after the first 10 hours per month) for a Telecom residential user to make a local call to an ISP accessed by a call to a local telephone number. (Subsequently, Telecom decided to introduce the 2 cents per minute charge from 1 November 1999);
3. Telecom would provide 0867 calls free of charge to other telecommunications operators at the network interconnection interface; and
4. Telecom would assist ISPs with any legitimate costs incurred in changing to 0867 numbers.

Telecom Residential Telephone Service Users Interests

As you will be aware, there has been considerable interest in the 0867 Internet initiative. Concerns have been expressed about the possibility of charging for residential calls to 0867 numbers in the future, the potentially lower quality of 0867 calls, and the possibility that the initiative would have an anti-competitive effect.

In light of these concerns the Government has taken a keen interest in the 0867 initiative. In particular the Telecom 0867 initiative raised Kiwi Share obligation issues that the Government had to carefully consider. However, it is not appropriate for the Government to judge whether the 0867 initiative raises competition issues as there are well established mechanisms available under the Commerce Act for dealing with any such concerns.

As you know, the Kiwi Share provisions place a number of obligations on Telecom that are enforceable by the Crown. One of these is:

Local Call Charging - A local free-calling option will be maintained for all residential customers. Telecom may, however, develop optional tariff packages which entail local call charges for those who elect to take them as analternative.

Telecom said that it had received legal advice that Internet traffic is not covered by the Kiwi Share, and that consequently Telecom does not consider that the 0867 initiative is a breach of the Kiwi Share. Telecom said that it is nonetheless preserving a free-calling option for Telecom residential users to access the Internet via an 0867 access number.

The Government received advice from Crown Law that the 0867 initiative may be in breach of Telecom's Kiwi Share obligation to maintain a local free-calling option for residential telephone service customers.

Following receipt of this advice the Government had discussions with Telecom on the application of the Kiwi Share, in which our aim was to ensure the interests of residential telephone service users under the Kiwi Share obligations were protected.

As a result of these discussions, Telecom provided the following assurances in relation to the 0867 service:

1. Telecom will provide to its residential telephone customers unlimited calls to 0867 numbers used to access Internet service providers;
2. calls to 0867 numbers will be free of charge to Telecom residential telephone customers other than the standard residential rental. This condition does not apply where a residential telephone service user chooses another telephone service tariff option (for example Home Line with Local Calls);
3. the quality of residential 0867 calls will be no worse than ordinary residential telephone calls; and
4. Telecom will monitor the quality of 0867 calls and disclose the results in conjunction with the existing residential telephone service quality indicators.

The Government has decided that while Telecom meets these assurances the policy objectives of the Kiwi Share obligations are being met, because residential telephone service users have a local free-calling option for making calls to ISPs to access the Internet. However, should Telecom contravene any of the assurances it made to the Government on 0867 service provision, the Government is able to enforce its rights under the Kiwi Share obligations. I have attached a copy of press statement relating to the decision and the related correspondence with Telecom, for your information.

This decision ensures the interests of residential telephone service customers are protected by providing an option by which calls to ISPs for the purpose of accessing Internet service will continue to be available free of charge and at a quality equivalent to existing services. This will assist in ensuring that the Internet continues to contribute to the growth of the knowledge economy.

Yours sincerely

Maurice Williamson

MINISTER OF COMMUNICATIONS

Encl

© 1999 The Internet Society of New Zealand
Last updated 24 October 1999