Submission on the MED Discussion Paper: "Implementation Review of the Telecommunications Act 2001"

1 InternetNZ and its Role in the Industry

InternetNZ (www.Internetnz.net.nz) is a not-for-profit, Incorporated Society that represents wide ranging views of the Internet community. Our vision is to see the Internet as open and uncapturable, offering high performance and unfettered access for all. Our mission is to protect and promote the Internet in New Zealand.

Membership to InternetNZ is open, at a nominal fee, to any person or organisation, and includes web designers, academia, public information groups, Internet users and many Internet Service Providers. InternetNZ also represent the New Zealand Internet community on some global Internet organisations. Our membership has been instrumental in the development of the Internet in NZ and continues to be closely involved with the operation, governance and promotion of the Internet. InternetNZ is the delegated authority to manage the .nz domain name space.

Our key objectives include the promotion of competitive provision of Internet access and services, to facilitate the development of the Internet, and to promote widely and generally available access to the Internet in New Zealand. InternetNZ acts to fulfill its objectives to advantage the local Internet community as a whole, not to advantage individual persons or organisations who may be members.

InternetNZ has gathered input for this response from members, Internet Service Providers and other interested parties. We have also consulted with other responding parties to help achieve a more effective Act.

In evaluating the discussion paper and in consultation with all parties, we have provided a two layer response. Our first layer is about our desire to promote change in the commercial sphere that will reduce the need for the regulatory components. Recognising that this is unlikely to meet all the needs of the New Zealand Internet market, we are presenting as a second layer, our formal response to the Implementation Review.

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2 Changes to the Commercial Broadband Market

InternetNZ regards the rollout of broadband Internet services as a key indicator of the success of the regulatory regime applied to the telecommunications industry. As such, we highlight the broadband area and progress in the rollout to illustrate some of the broader issues we believe the current implementation review needs to address.

InternetNZ's principled position is to support commercial solutions in preference to regulatory based solutions. Regulation is a response to market failure, and our first preference is to see the market for broadband working in a way that makes regulation unnecessary. Currently, we do not believe the market is working in such a manner.

A fresh approach and changes to business models by incumbents is therefore vital. With no other action, time alone (and therefore delay) will see the changes we wish to promote occur naturally as new technologies from new service providers come to market.

New Zealand cannot afford to wait for these changes. We need to see faster deployment of a wide range of affordable home and SME high speed, unbundled circuits. As we languish at the lower end of the OECD broadband uptake list, New Zealand is in danger of damage to our economic health as we fail to provide the open Internet access which will allow innovation, productive tools, and new social models to flourish

It is important not to lose sight of the reality that, as the MED benchmarking report confirms, New Zealand still languishes at the bottom of the OECD 'broadband' table. The statistics collected by the Commerce Commission so far give little room for comfort with only 74,449 'broadband' connections as at 30 September 2004 of which only 42 are wholesale. This equates to 0.05% of the wholesale target. While UBS has only recently been introduced, this performance is woefully inadequate and of considerable concern.

It is also important to recognise that New Zealand was an extremely fast adopter of Internet technologies during the 1990's, matching the USA in uptake and penetration, at a time when telecommunications providers were not dominant in what was a highly competitive retail market. It is probable that uptake of broadband would follow the same uptake trends if broadband products were of sufficient speed, quality and price as to appeal to end users.

We have noted broadband because, despite definitional arguments about what does or does not constitute 'broadband', downstream speeds of 256KB/s are well short of several Mb/s speeds that are readily achievable with ADSL. The focus should be on those higher speeds (which are the speeds which bring true broadband benefits) more than on the slower speeds (that is between 256KB/s and 2 Mb/s downstream speeds). It is misleading simply to talk about broadband without regard to that wider picture and much commentary overlooks this. Worth noting is the fact that only 1 in 5 broadband connections after 30 September 2004 were of a speed >512KB p/s.

Telecom is moving quickly to introduce its version of DSL and this is helping improve the statistical perception of broadband take-up in New Zealand. Unfortunately the rollout of DSL with the current burdensome restrictions is preventing domestic and mid-sector connections from being used for much more than accelerated web browsing.

Further, the failure to deliver any significant wholesale access is reducing competitive ISP offerings. ISPs owned by incumbent telecommunications providers are seen as having a better access to 'wholesale' services than other ISPs; the playing field does not look level to many industry participants.

Current regulatory action is unable to keep up with either technical or commercial changes. Changing the Act to resolve this impasse is important, but will continue to have incumbents expend millions of dollars dealing with the issues of regulation. This money would be better spent making the broadband access pie bigger.

A change to the way the broadband market works, independent of any reforms to the regulatory framework, would enable incumbent and newer providers to work together to reach targets for both retail and wholesale uptake of broadband in New Zealand. If this was achieved it would promote more competition in New Zealand, ultimately leading to the long-term benefit of end-users - the purpose at the very heart of the legislation. We do not want Telecom to slow down its investment in infrastructure, yet we want competitors to have access to the market.

Voluntary split of retail and wholesale broadband services by access providers;

Open wholesale access to broadband services for all access seekers on the same terms and conditions;

Removal of constraints on DSL access;

Providing non-competing neutral support for customer service.

This action will see more DSL, more innovation, and a healthy domestic ISP market, leading to New Zealand recovering its position at the top end of technology wise countries.

If we continue down the current regulatory path, the ISP market will cease to innovate, growth of new applications will slow down, research and development will almost cease, and we will have to wait for the evolving wireless technologies and "fibre to the home" before New Zealand starts up the ramp again. DSL has a window of around three years before other access technologies have a real impact in New Zealand, so we need to move as quickly as possible to use that window well.

If an approach which can deliver a more functional market in broadband provision cannot be arrived at by a change in culture by incumbent market players - either by means of a model like the above or by an equally effective alternate mode - then InternetNZ will have no choice but to support a new commercially aggressive regulatory model as the only way to improve the current situation.

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3 Response to the Discussion Paper

The following sections set out InternetNZ?s response to the issues raised by MED in the discussion paper.

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4 Introductory Comments

Commission applications and determinations are marked by an increasing trend toward data issues (the focus of course in the Internet community). Strikingly, the Commission only gets significant involvement from Telecom, TCL and, to a lesser extent, Vodafone and BCL.

Involvement of others is much lower. The nature, quality and length of the larger players' submissions self evidently reflects considerable expenditure in terms of time and cost. This is well beyond the resources of other stakeholders ranging from the public (the very target of the Act by way of the section 18 Purpose Statement), through to smaller players such as ISPs, etc.

There have been relatively infrequent appearances by the smaller ISPs and others. Self evidently, again, their input has been relatively constrained and low-budget, reflecting the limited time and funding available to them compared to the larger players. Yet they have very considerable sums at stake. Of course ultimately, the public have very considerable sums and issues at stake as well, yet they are hardly represented at all.

With the heavy skewing of involvement in the Commission toward larger players, there is high risk that Commission decision making, not having the benefit of submissions and involvement from these other players and the public, will not make decisions which meet key Telecommunications Act drivers (in particular, the section 18 Purpose Statement).

This point is usefully illustrated anecdotally (in relation to consumers, in a way that illustrates the point as to smaller providers) in a commentary on the Victorian Electricity regulatory regime :

" The five Victorian distribution businesses [that is, the major electricity providers] have successfully claimed combined regulatory costs of $67.2 million in the recent distribution price review. These costs are recovered from consumers. We note also that one [distribution business] alone employs over 15 full-time staff in its regulatory affairs branch ".
In contrast, we suggest there are no more than the equivalent of four or five full time workers across Australia working on energy issues from a small or domestic consumer perspective ...
Groups advocating for consumers are "locked-out" of the reform process due to a lack of dedicated resources. It is not the role of the [regulatory body] to advocate for consumers; it is an independent body that attempts to balance the needs of power distribution companies, energy retailers and both large and domestic consumers. The interests of the suppliers of electricity is advanced by significant lobbying, research and consultancy budgets which contribute to the overwhelming dominance of suppliers' interests in the reformed energy market.
In our view it is critical that the consumer interest in the provision of these services be strongly and effectively voiced. This is particularly the case regarding low-income and disadvantaged consumers given that we believe that they suffer risk in relation to price and supply."

The difficulty of getting full input from all affected, including the smaller participants, is always a problem in any dispute resolution process (whether before the Courts, regulatory bodies, etc). No matter how far changes are made to improve this (by legislation or by other means), it will always remain a major problem and one which adversely impacts on the quality of the process and its outcomes. It is ironic and unfortunate that the public has virtually no input at all.

Therefore the limited ways in which improvements can be achieved and the balance redressed, should be fostered. This is so even if in some instances that involves a departure from the purity of the principles that underlie the structure of the regime.

Frequently, the smaller participants (and the public) will have interests in common with one or more of the major players (so that their interests are in effect represented anyway). This will not always be so however. For example, TCL and Telecom are the major upstream wholesale Internet providers to the ISP community and as such their collective interests do not always entirely overlap with those of ISPs. So, for example, the predominant situation where TCL applies for a determination as access seeker to Telecom will not necessarily benefit downstream ISPs. For example, when and if the key area of Internet peering becomes an issue, Telecom's and TCL's interests probably will overlap with those of the ISPs. Further, commercial resolution solely between those larger parties can end up leaving the other stakeholders floundering.

It is said that the time and cost hurdle, which apply to initiating regulatory action under the Act, usefully provide a method of discouraging excessive applications before the Commission, and that this encourages commercial resolution. Therefore, anything that lowers those barriers has negative consequences. We note however that:

Any steps that reduce time and cost of involvement, and enable greater participation, will only make changes at the margins. Time and cost barriers will remain a heavy deterrent particularly for the public and smaller players.

The smaller participants will always face a significant disadvantage (both before the Commission and in commercial negotiations) in dealing with the much larger players.

Neither regulation nor competition provide anywhere near perfect solutions. Thus, given the imbalances and the risk of decision-making being tilted in one direction because of lack of involvement from smaller players, it is appropriate to make some changes to help improve that position.

InternetNZ has, in the process of preparing this submission, consulted widely among its members and other market participants. Many of those consulted are greatly concerned about the outcomes under the legislation, the delays in the processes, the difficulty in dealing with the major incumbent (with it being said there is a "take it or leave it" approach), etc. A number of situations have been identified and examples given. Depending on the nature of submissions given by other parties, InternetNZ may consider, during the cross-submission phase, collating anecdotal and statistical data which expand on those concerns.

It is important to note that a widely held industry view of what the scope defined in the discussion paper appears to achieve is really just 'shifting the chairs on the deck of the Titanic' rather than making proper changes which would enable access to fair and comparable services, and promote competition for the long-term benefit of the end-user. Many felt the Review simply swept aside the day to day realities of the issues confronting the industry.

InternetNZ feels that had these wider issues been addressed, a great deal more constructive participation would have been forthcoming. This narrow scope may have resulted in market players suggesting the only way they can address the real issues was to suggest greater regulation of Telecom by the Government. InternetNZ does not believe that this is necessarily the best answer for the long-term benefit of the industry.

In light of this, suggesting ways the Act can be 'tweaked' is irrelevant. Many access seekers feel in the meantime they are stuck with what is being offered by the "take it or leave it" attitude of the incumbent if they are to be a player in the market.

Despite these reservations, the impression InternetNZ came away with from our interaction with the industry was that they genuinely want to be as proactive and constructive as possible to facilitate the resolving of the issues. Many expressed that the real losers of this situation are consumers who are being deprived of many new products that are not being made, research and development that is not being done, and the lost cost benefits if a truly competitive market existed in New Zealand.

While problems are readily identifiable (such as the time and cost barrier for smaller participants as noted above), solutions are not so readily available. This review should achieve whatever it can with the limited options available.

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5 Negotiating Commercial Terms for Provision of Regulated Services (Q1)

Many of those consulted report considerable delays in the commercial negotiation process. It is recognised that, for each service, there is a wide range of issues to be negotiated, and many of them are inherently time-consuming, complex and technical. However, there is still a view that the negotiation processes are unnecessarily elongated and should be expedited. In parallel, there is the problem noted above of the difficulty of the smaller party dealing with the larger player and the negotiating difficulties and imbalance implicit in that (a "take it or leave it" problem).

We assume that there can be no change to the underlying rationale in the Act (reflected in section 22) of encouraging commercial resolution ahead of regulatory determination. Control in this area lies largely with:

the parties (an access seeker after all has the ability to set up a paper trail where a recalcitrant access provider is unnecessarily delaying progress matters); and

The Commission, which, presented with evidence such as a paper trail, can determine that reasonable attempts to negotiate have been made (section 22(c)).

Other than reference offers, and amendment of section 22(a), the one legislative change which could have powerful impact is compulsory mediation (by which an access seeker can call for mediation after specified trigger points).

For some years there has been controversy around whether a party should be forced into what is essentially a facilitative process (mediation) against its will. While the controversy remains, it is diminishing. That is reflected in the greater adoption of compulsory mediation in a number of legislative instruments in New Zealand (a well established example is the Employment Relations Act 2000).

Telecommunications is a sector where compulsory mediation could be established with minimal process difficulty, minimal cost, and enhanced prospects of successful outcomes. Reasons include:

While ideally the mediator would have relevant expertise, that person can if necessary simply be chosen from an existing panel (eg: LEADR). Suitable existing mediators (whether LEADR qualified or otherwise) can develop expertise in the area. The cost of the mediator is miniscule compared to the other costs being incurred by the parties and the Commission. This makes a compulsory process simple and cheap to establish.

At the other end of the spectrum, a specialist mediation service can be set up (which in some way would need to be separate from the Commission, given the conflicting roles of facilitating resolution and the judicial role of the Commission). That costly solution however is not necessary. Existing panels can be used, as noted above.

Of course it is one thing to get parties into a mediation and another to get them to successfully participate. General experience however is that, once involved in the process, parties will generally participate and the success rate of mediations generally is extremely high. This is the practical experience reported by experienced professional mediators.

Mediation is a process that can be done over a very short time period, does not require extended lead-in time, and so does not involve significant delay. That delay, which should be measured in weeks rather than months, is greatly outweighed by the potential benefits, including the likelihood of shortened resolution periods.

Importantly, while the Commission ought not know about the content of the discussions at the mediation, it can utilise an unsuccessful outcome as part of the evidence supporting compliance with section 22(c) (that is, that reasonable attempts to negotiate terms have taken place).

Mediation processes are sufficiently fluid to accommodate complex negotiations (for example, extending if necessary to resolution of detailed technical terms, possibly by using more than 1 mediator (each with differing expertise) for a particular service). Multiple mediators still provide a much less complex and expensive way of resolving issues than say, the hearing of a determination.

A major tenet of the legislation is the risk or implicit "threat" that, if parties do not resolve issues at one level (eg: negotiation), then matters must advance to the next level (eg: determination), and perhaps even to another level (eg: a political solution). This of course has the effect of encouraging resolution of issues at any earlier stage. Therefore the most potent effect of the compulsory mediation step is more likely to be to encourage commercial resolution before reaching the mediation point. Frequently, parties will try and settle a dispute before mediation. In other words, this is another hurdle, which, like other hurdles, is a driver to settle.

Particularly significant is that compulsory mediation offers an opportunity for the smaller participants to take a real part in the overall processes and outcomes, given the lower cost of that process, its ability to facilitate resolution of issues, etc. For the reasons noted above, this is likely to produce better public good outcomes.

The telecommunication industry is a relatively small and sophisticated grouping, making compulsory mediation a more viable option.

Compulsory mediation is a mechanism by which the Commission can encourage resolution of issues rather than becoming directly embroiled in them, in a way which otherwise puts its judicial independence at risk. Examples include attempts at resolution of certain aspects of determinations, negotiation of undertakings, and reference offers.

On balance, the positive features of compulsory mediation greatly outweigh the negative features.

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6 Reference Offer (Q2)

The reference offer solution proposed in the paper is supported by InternetNZ. While it introduces additional steps and processes, in net terms it is likely to speed up resolution and provide better outcomes, particularly over time. For the smaller providers, it provides an enhanced opportunity for participation by them (where otherwise they are either forced to wait until the major parties battle it out, or end up taking a "take it or leave it" outcome). For the reasons identified at the start of this paper, this is one area where the imbalance can be redressed, ultimately to the benefit of the public good under section 18.

As the MED discussion paper identifies, there will be some situations in which reference offers will not be suitable (e.g.: where there are only one or two access seekers). We do not think reference offers will lead to greater regulation but rather to the contrary outcome (enhanced and improved commercial negotiations and/or better 'cleaner' regulation). As noted above, the Act revolves around a series of sequential steps which have the effect of encouraging earlier resolution at each step and the reference offer will have a similar effect.

TCL's current application to clarify the Telecom UBS offering provides a very good example. For the Internet/data community, this application is drilling down into details which are particularly important (technical specification of this service, KPIs, SLAs, etc). While the application is significant for the Internet community, its ability to be involved, due to time and cost hurdles, is relatively limited. With its focus on the technical and commercial aspects of implementation, this is a classic example of where a reference offer approach could work well. It is not the only solution (after all, the TCL application may still lead to appropriate outcomes (whether regulated or commercially negotiated)). But the reference offer route provides the means for a significantly better outcome including for the public good, for a number of reasons:

By establishing a reference offer regime which gives some fluidity to the Commission in its approach (e.g.: the process, the level of its involvement and so on (thereby allowing the options in both para 26 and 27 of the MED Discussion Paper)), the process for resolution of the reference offer can be tailored to the particular circumstances. For example, those involving resolution of largely contractual and 'legal' terms might follow one type of process, and those involved in resolution of technical implementation provisions may follow another (for example, a variation on the workshop approach that the Commission currently takes to some technical issues).

Generally of course, a reference offer situation will involve a combination of those and other areas. Legislation facilitating a reference offer should give to the Commission discretion as to how it approaches matters.

The one area that will need to be handled carefully is that of handling the potential conflict between the Commission's judicial role and that of facilitating resolution of reference offers. The mediation option noted above can of course assist in dealing with the latter point. The Commission can be given discretion in the way in which it handles those conflict issues. Generally however its approach can be judicial in nature (such as controlling and driving the process forward). The courts frequently do this (control and drive process), so there is no reason why the Commission can't do it as well.

Particularly important is that the reference offer process significantly enhances the ability of the smaller participants to be involved in the process as the time and cost barriers are likely to be lower (although of course they will remain to a significant degree). They can more readily participate in that process in contrast with their few cameo appearances in relation to major determination between larger access providers and seekers.

There are of course common features in various types of service offerings. Over time a precedent base (flowing not only from reference offers but also from current and future determinations and commercial solutions) is built up. That will gradually narrow the areas of contention on each new service. On this aspect, the current TCL application in relation to refinement of UBS services provides a good example. The nature of the submissions thus far by the access seeker and the access provider are such that the parties seem currently to be a long way from honing down to what are the important and real issues. No doubt this will happen as part of the process, but over time the sort of unnecessary debate that is evident in those submissions can be reduced significantly.

In answer to any suggestion that the reference offer approach cannot handle complex technical issues, the reality is that those issues need to be handled one way or another anyway. Generally they will be resolved by the parties, if only because it is known that ultimately the Commission can make a determination even on those complex technical issues. So usually the Commission will not be forced (whether by way of reference offer or determination) to make a full decision on such complex issues. But the fact that it has the ability to do so is likely to drive resolution. A particularly significant example of this is number portability referred to below.

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7 Amendment of Section 22(a): Application for Determination cannot be made when Commercial Terms are still in force

InternetNZ acknowledges the principle underlying section 22, which is designed to encourage commercial resolution, and that any change to section 22(a) may erode the purity of that approach.

The reality however is that such an approach impacts negatively on the market place, leaving not only the smaller access seekers but also the larger access seekers with a "take it or leave it" decision, and little practical choice for the smaller providers but to take an earlier commercial offering in view of the very considerable "first mover" head start that the incumbent gets (along with the head start other ISPs can get if they take a commercial offering). An ISP really has no choice.

Balancing matters, the better approach is to dilute section 22(a) to enable applications to progress (and reference offers too), despite the existence of commercial agreements.

In situations such as those identified in the MED Discussion Paper at paragraph 20 (where the service is contracted for, say, 2 years) it is recognised that amending section 22(a) would generally involve an incursion into contractual freedom. The reason for this is that, to have effect, such change would have to allow the access seeker to replace its existing contracted service with a regulated service before the end of the term of the contract. There is no contractual problem with this where there is no minimum charge for the contracted service or any transition cost (the access seeker can simply stop taking the service). The problem arises where there is a minimum monthly or other charge under the agreement.

However, this incursion into the agreed terms, and into uncertainty for the access provider, is relatively minimal in its impact. Given the precedents already established and the overall framework of the legislation, the risk can be relatively accurately assessed by the access provider and factored into its decision making. As identified above, nothing is perfect in any telecommunications regime and the benefits of amending section 22(a) outweigh the disadvantages.

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8 Access code referendum threshold (Q3)

While a matter mainly for the current TCF members, on balance InternetNZ considers the regime should remain the same, save that the threshold should be 75% of those voting. It may be that there should be a required quorum as well.

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9 Commerce Commission approval and enforcement of access codes (Q4)

There appears to be a hiatus in the legislation which ought to be fixed to enable codes to have the strength and legal effect of determinations.

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10 Delays in provision of multi-network services (Q5)

The extraordinary delays in implementing suitable number portability arrangements compared to other countries is self-evidently problematic. There is every sign that, even though portability is progressing through the TCF, we are a long way off from resolution such as in relation to technical issues. InternetNZ has considered solutions such as incentives or penalties in the event that parties do not sufficiently expeditiously conclude multi-network service arrangements. We have concluded that these are too difficult to implement and therefore the only practical response is that proposed in the discussion paper (enabling the Commissioner to instigate multi-network determinations).

It can be expected that there will be other multi-network services later where similar problems could arise. Therefore the proposed response to the number portability problem should benefit resolution as to multi-network services generally.

It is arguable, as a matter of principle, that the Commissioner should not get involved in this way, (that is, by entering the arena and driving determinations). The reality is that we have a practical example (number portability) where it would have been highly desirable to have some mechanism to speed up the process. There does not seem to be any other practical solution. The Commission of course has a judicial role but we do not consider that giving it the ability to become involved in this way erodes that judicial role significantly. Looking at the Courts for example, the judges routinely drive processes and instigate steps, while still deciding substantial issues. There are many Court Rules that allow the judges to instigate steps without request from the parties.

Additionally, this is a low impact change compared to other interventionist actions undertaken by the Commission such as undertakings, monitoring, deferring resolution of issues until further steps are taken by parties (for example, UPC), and so on.

It may be said that issues such as number portability involve such technical and commercial complexity that it is inappropriate for the Commissioner to enter the arena in this way. That view we consider is misconceived for a number of reasons:

As things stand, a party to a multi-network service is able to apply for a determination which of necessity may require the Commission to resolve or to determine those complex technical and commercial issues. In other words, this is already an issue.

The Act of course is structured to encourage parties to resolve issues, including issues of detail, before the Commission has to do a determination. It is very likely that the detail on number portability (or other multi-network services where this is an issue) will be thrashed out before the Commission has to make a determination. In those rare cases where the Commission has to make a decision, it can do so, and will of course be aided by full details provided by the parties, including by utilising the workshop technique that the Commission has adopted in relation to technical issues.

The ability of the Commissioner to instigate a determination is potentially a powerful method of speeding up and forcing progress.

In short, the present circumstances are self-evident, benchmarked against world-wide progress on number portability. The number portability delays call for a response and it does not follow that the current TCF process will resolve matters quickly enough.

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11 Excessive delays with current process for obtaining access to new or improved regulated services (Q6)

That there are problems with delays in getting access to new and improved regulated services is apparent from, for example, (a) the UBS implementation delays and (b) the fact that TCL has now felt compelled to apply to the Commission for clarification of the detail around the UBS offering which, they say, falls well short of what is appropriate. In the background is the concern expressed by other parties that arrangements as to UBS by the Commission were made without adequately involving the industry.

This is an area where the compulsory mediation option noted above may well be helpful in achieving quicker outcomes. In some instances it will be appropriate for the Commission to enter discussions to seek solutions (as it has in relation to UBS, UPC etc). In doing so it needs to be careful to minimise negative impact on its judicial function, and to consult as appropriate. There is a balance to be drawn in this regard and the Commission should be able to exercise some leeway. Where by reason of the concern about the need to act judicially, it is too difficult for the Commission to become actively involved in discussions, the Commission can direct that a third party become involved in facilitating discussions and progress (including, in our view, utilising the compulsory mediation process referred to above). This however, is a matter for the Commission, not for legislative change, except as to the compulsory mediation option.

For similar reasons, there is merit in the Commission having discretion to backdate the application of its determinations where similar contracted services are being offered or where a product is ready to be supplied, with only price to be agreed. For example, the access seeker may get a refund on price paid. The access provider is able to assess its risk, particularly based on precedent established thus far. Thus, impact on investment risk is minimal. Such an approach is more likely to expedite commercial resolution on a satisfactory basis, to involve more satisfactorily the smaller providers and be to the ultimate benefit of the public under section 18. The advantages outweigh the disadvantages (uncertainty for the provider). Such a regime would need to leave discretion as to its implementation and the details of that implementation to the Commission, to accommodate the variety of circumstances. The Commission, as a specialist tribunal, is well able to understand and implement the complex issues and, if such an approach is adopted, the legislation should be largely discretionary rather than prescriptive in its approach.

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12 Monitoring (Qs 7 and 8)

At paragraphs 61-65, the discussion paper raises the prospect of monitoring of implementation, compliance with determinations and undertakings, etc. In practice, this is happening to a limited degree (for example, the Commission withheld taking further steps pending improvement of the UPC offering by Telecom, and the Commission is also monitoring broadband roll-out on a quarterly basis). This appears to be working in practice without the need for specific statutory blessing.

There are concerns around the degree to which the Commission should consult when taking certain steps (e.g. accepting and monitoring a Telecom commitment). As noted above, that is a matter for the Commission, whose approach is reviewable by the High Court and further legislation is not required.

While monitoring is occurring in practice to some degree, InternetNZ considers that monitoring should be a fundamental part of the Commission's process and therefore it should be specifically governed/facilitated by statute. Proactive and comprehensive monitoring may be the most effective means of meeting the concerns identified in relation to Question 6.

To avoid multiplicity of process, enforcement action as a result of some breach detected in monitoring should not have its own regime as floated in the paper: the existing regime (namely enforcement by way of High Court order) should remain. This is a monitoring not an enforcement regime.

The Commission should be enabled to monitor of its own volition without request from any other party. In practice, in most if not all cases, this would only be done following submissions by affected parties (and usually will be requested anyway).

The monitoring issue however raises a major concern which appears to be far more significant than the need to amend the statute to endorse monitoring, namely, insufficient resourcing of the Commission. This issue very widely impacts on the implementation of the regime. We understand that the Telecommunication Commissioner's office is, in itself, adequately funded (in the sense that it is not spending all the funds allocated to it). However we understand that there are insufficient resources available from the Commerce Commission as a whole and insufficient availability of suitable expertise (due to limited availability of experts such as technical people, conflicts of interest and so on).

In many ways it appears to be more important to find some way to adequately resource the Commission's operation, than it is to amend legislation. Without adequate resource, more proactive steps such as monitoring, research as to future developments, review of technical issues, and so on, seems unachievable. The dollar risk of poor regulatory decisions and implementation far outweighs the dollars that might be spent at the Commission level.

This is largely an operational issue, to be resolved by the Commission, presumably with input from MED. InternetNZ considers it is particularly important to place focus here and to make changes as necessary to achieve appropriate outcomes. For example, if it is necessary to pay greater fees or salaries to specialists, that should be done to attract sufficient and suitable expertise.

There is a particularly important point in this. Without that expertise, the Commission is heavily dependent upon evidence and information put forward by the major telcos (given the limited involvement of other parties). As we identify above, with the best will in the world on the part of the Commissioners, this can in itself skew the process, and outcomes which ultimately are not about the telco's rights so much as the public good. Strong resourcing of the Commission will make a big difference.

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13 Alleged delays in considering LLU (Q10)

Whatever the history, and InternetNZ recognises the complexities in resolving these issues, we think there is little guidance for the future in this. In relation to Commission processes (perhaps the greatest potential for delay going forward), InternetNZ is optimistic that, with major determinations behind it, and precedent being established, the Commission can now move more quickly to resolve determinations. Nothing is perfect of course, but InternetNZ would like to take this opportunity to congratulate the Commission on having achieved so much in such a short time. Of course, not all agree with the outcomes, but there has been a huge workload.

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14 Processes with the Minister (Qs 11-16)

InternetNZ support the proposed changes.

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15 TSO (Q17-20)

There are a number of areas of concern ranging from definitional to substantive, most of which are currently awaiting a final determination by the Commerce Commission. InternetNZ considers that it would be better to await that determination before decisions are made as to whether or not there ought to be legislation to clarify/alter the position as to TSO. InternetNZ wishes to be able to provide further submissions following that determination and/or by way of cross-submission.

However, by way of initial observation, it is noted that there is a wide array of possible interpretations and outcomes in relation to the "liable person" definition, some of which could have unusual and unexpected effect. The Statute's approach to "revenue" appears to be too simplistic and facilitates an argument that this should be the "gross" revenue of the liable person when that would lead to incorrect economic/accounting outcomes based upon double counting (for the reasons identified by the Commission in its draft TSO determination for 2002/2003).

It seems inevitable that, without amending legislation, one party or another will pursue the Commission's TSO determination on appeal as there are considerable sums at stake. That process will not necessarily produce the correct and fair outcome, and therefore it is suggested that legislation should be entertained sooner than later. Therefore, it is suggested that legislation to clarify the position should be introduced as early as possible after the 2002/2003 TSO final determination is produced.

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16 Undertakings (Q21)

The regulatory regime has a number of facets of which a determination is only one. The risk or 'implicit threat' of a matter being escalated is a powerful part of the regime. InternetNZ considers that the undertaking regime (and similar activities on the part of the Commission such as deferring consideration of a determination) form a potentially powerful part of the regime. As noted above, there are issues around consultation in respect of undertakings etc, but that is a matter for the Commission, not for legislation. Undertakings and similar mechanics ought to be encouraged and given clear statutory mandate. The suggested compulsory mediation is a useful adjunct to a regime which revolves around undertakings and comparable mechanisms.
17 Disclosure of Information (Q22-23)

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17 Disclosure of Information (Q22-23)

Just as monitoring is a powerful component of the regime, so is the proposed disclosure of information for the proposed purposes (with suitable confidentiality restraints).

Disclosure of statistics and other potentially confidential information is within the discretion of the Commission (subject to Official Information Act obligations). Depending on the approach the Commission takes in its current confidentiality review, legislation may not be required as the Commission could produce a suitable outcome. However, InternetNZ does remain concerned to encourage full disclosure of TSO-related useful information, subject to confidentiality concerns.

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18 Independent Facilitation/Mediation Service (Q24)

This of course is a potential process that affects the ISPs. The majority are not in favour either on a voluntary or a compulsory basis. For all retail providers in the telecommunications area, there are strong market drivers to provide good services and have positive complaints handling procedures. Additionally, from a legal perspective, there are existing inexpensive remedies available such as the Disputes Tribunal and a complaint to the Commerce Commission under the Fair Trading Act. We understand that such complaints bodies are typically very expensive to run and it is not clear that the need to add such a body is clearly demonstrated.

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19 Other Comments (Q25)

Consumer Representation Body: Following from the last point, InternetNZ does see a useful role for a government funded body to represent the interests of consumers and the public good in relation to Commission activities. This will help address the striking point (noted at the outset of these submissions) that the process is largely driven by the large Telcos with minimal input from smaller players and the public.

There are precedents from offshore and an example is provided by the Victorian energy sector, as noted above. See para 2.1 in Bronwyn Taylor, Accountability and Consumer Complaint Handling in the Privatised Victorian Electricity Industry (2002) 8 NZBLQ 308.

Commission Costs: Under the Act, the Commission's costs must be met by the parties to the application, although the proportions can be allocated by the Commission. So far there has been a 50/50 split.

A smaller access seeker is faced with an often fatal barrier because it has to pay those costs, which can be substantial. It is recommended that the Commission is given discretion to waive payment of costs in appropriate cases. The high costs that the access seeker must expend internally remain a sufficient deterrent to stop frivolous applications.

Number portability: A technology-neutral approach: The Schedules contain two separate regimes, one for fixed and one for mobile, with some doubt about the ability to port numbers between VOIP, the traditional PSDN, and mobile. While there are differing technological issues, the legislation should be amended as soon as possible to accommodate these inevitable needs (rather than await an application process and/or debate around interpretation of the legislation. Porting of local numbers between cellular and fixed networks should be permitted and is consistent with a technology-neutral approach to regulation and with promoting competition.

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