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Position Paper on Telecom's Submission on Telecommunciations Bill

InternetNZ Position Paper

The Internet Society of New Zealand (InternetNZ) constitution's first object states "To promote the competitive provision of Internet access, services and facilities in an open and uncaptureable environment".

We believe that the Telecom submission to the Telecommunications Bill Select Committee contains errors of fact that are misleading to the extent that if the submissions were given credibility, they pose a significant threat to the future of the "free and uncapturable" environment of the Internet in New Zealand.

Specifically, we believe clauses 23 and 24 of the Telecom submission contain errors, and these two clauses underpin a considerable portion of the Telecom position throughout their submission. The specific clauses state:

23. The result is that dial-up internet access is underpriced, indeed it is remarkably cheap. This may sound as though it is in the long term interests of end users, but it is not. The cross-subsidisation of ISPs and dial-up internet access is a huge barrier to the economic viability of competing broadband services such as ADSL, cable modem, satellite and 3G cellular networks. In simple terms, it is very hard to compete against "free".

24. The single biggest barrier to the development of a knowledge economy in New Zealand is the provision of free local calls under the Kiwi Share combined with existing interconnect arrangements which do not adequately deal with dial-up internet traffic.

Highlight - "The single biggest barrier to development of a knowledge economy in New Zealand is free local calling for dial-up Internet access".

Regarding clause 23, the following points should be noted:

  • Telecom's own ISP, Xtra have been the same for more than 3 years (notwithstanding their forthcoming price increase in October), these prices having been applicable prior to any ISP's having offered free access, or utilising interconnection credits.
  • As the largest provider of Internet access in NZ, Xtra is the trendsetter for prices for dial up access in New Zealand.
  • Most ISP's in NZ do not utilise interconnection credits to subsidise Internet access, and most have a successful, profit based business model, generally emulating the Xtra pricing model.
  • Compared to pricing throughout the OECD in August 2001, NZ's pricing is not "remarkably cheap" or "underpriced". From graphs at the OECD website the cost comparison for 20 hour packages, and "always on" packages compare as follows:

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It should be noted that NZ, for PSTN fixed charges (phone rental), rates as one of the most expensive in the OECD, and is in 9th place for total cost of 20 hours access.


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Again, in the "always on" category, NZ does not figure much above average, and is second only to Mexico for highest PSTN phone charges.

The OECD web site notes " The cost of accessing the Internet continues to fall across the OECD. Between September 2000 and August 2001 the price of 20 hours of Internet access, at peak times fell by 6%. At off-peak times the price fell by 7%. For 40 hours of Internet service the price at peak rates fell by 7% and 8% at off-peak times.".


In the above graph, again from the OECD website, further evidence discloses that Group 2 countries are ahead of the OECD average, both in terms of the penetration of Internet hosts, and secure servers. The countries in Groups 1 and 4 are above the OECD average in either Internet hosts or secure servers. The countries in Group 3 are below the OECD average in regards to both hosts and secure servers.

Group 2 includes Australia, Canada, New Zealand and the United States, typically countries with unmetered local telco charges. On the other hand, virtually all countries included in Group 3 have local call charging by their dominant telcos. Mexico is possibly the sole exception.

It must be remembered that the knowledge economy can not function without access by the knowledge society. As has been clearly displayed, where the costs of access to the Internet are high, the take up and usage is correspondingly low. Without significant uptake by end users, it becomes immaterial what goods and services are offered - there can be no sellers unless there are also buyers. The cost of access undoubtedly impacts significantly on the measure of society's take-up of the Internet.

It therefore flies in the face of logic that Telecom should argue the opposite viewpoint!

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Regarding Clause 24 from the Telecom submission, we believe it disingenuous to tie together the Kiwi Share and interconnection agreements.

Further speculation highlighted states "The single biggest barrier to development of a knowledge economy in New Zealand is free local calling for dial-up Internet access".

We would maintain the opposite viewpoint, that the single biggest factor for a knowledge economy in New Zealand is free local calling for dial-up Internet access. Again, reference to the above graphs provides overwhelming evidence that countries that provide free local calling have the largest uptake of Internet usage, Internet hosts and secure servers.

We believe Telecom is wishing to once again seeking to re-litigate its obligations arising from the Kiwi Share agreement. It should be noted that Telecom had recently already unsuccessfully attempted to exempt data related calls from the Kiwi Share agreement, during the 0867 debate.

If Telecom does not wish to honour its Kiwi Share obligations by continuing to provide free local calling to residential customers, we believe Telecom should seek to exit the market and free the way for carriers who are prepared to provide the services.


The two clauses referred to above tend to underpin much of the ongoing conclusions reached within the total Telecom submission. The issues we have raised regarding these clauses indicates somewhat overwhelming evidence exists to suggest that the actual situation within the OECD is diametrically opposed to Telecom's viewpoint.

Our major concern is that the Telecom submission may be given a level of credibility that results in changes to the Telecommunications Bill. The possible impact may be that the final legislation provides some threat to our stated objective "the promotion of the competitive provision of Internet access, services and facilities in an open and uncaptureable environment.


Keith Davidson
The Internet Society of New Zealand

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