NZ ComCom decides to examine Spark fixed-line deregulation

The New Zealand Commerce Commission (ComCom) has announced that it will investigate the deregulation of wholesale access to Spark's fixed network, saying the presence of emerging competition from alternative wholesalers could warrant the removal of these services from the schedule.

The competition comes from the New Zealand government's ultra-fast broadband (UFB) initiative, along with rival Chorus' wholesale offerings.

"As signalled in our draft decision, we believe Spark faces increased competition from other wholesale alternatives such as ultra-fast broadband and Chorus' baseband services, which enable RSPs to provide retail voice services to consumers. Having considered submissions, in our view the time is right to investigate deregulation further," Telecommunications Commissioner Stephen Gale said.

According to Gale, the ComCom will also "monitor the provision of backhaul services", as they have evolved substantially over the past few years.

"A number of issues relating to competition and the current service descriptions have been raised in submissions during the current process," Gale said.

"We expect to produce an issues paper towards the end of this year to obtain further information and industry views on this matter.

"Although the Commission has decided not to investigate whether the backhaul services should be removed from Schedule 1, a separate process will be undertaken to monitor backhaul services under section 9A of the Act," the ComCom added in its final decision.

"As part of this process, we will consider the provision of regulated and unregulated domestic backhaul services. We will seek to identify whether there might be any emerging competition issues, or issues related to the current standard terms determinations that need to be addressed."

The ComCom first announced that it was examining whether to deregulate services in April, with the commission specifically looking at local access and calling services offered by means of a fixed telecommunications network; retail services offered by means of a fixed telecommunications network; and retail services offered by means of a fixed telecommunications network as part of a bundle of retail services.

"We consider that there are reasonable grounds to start an investigation into omitting this service from Schedule 1 of the Act," the ComCom said in its five-yearly draft decision on the Review of Designated and Specified Services under Schedule 1 of theTelecommunications Act 2001.

For the first category -- local access and calling services over fixed networks -- the ComCom said resale access has lowered the barrier for entry, ensuring greater competition. The regulator added that access to wholesale services such as the Ultra-Fast Broadband (UFB) network and baseband IP services now also compete with Spark's services.

In regards to the second service to come under review, retail services offered over a fixed network, the ComCom said the advent of IP-based services brings sufficient competition.

"We understand that the development of hosted IP-based services may provide increasingly competitive alternatives to ISDN/Centrex services by delivering similar functionality and features to business customers over broadband connections," the ComCom said in its draft decision.

"Hosted IP-based services can be delivered using wholesale services supplied by Chorus or LFCs."

For the last category under consideration -- retail services offered over a fixed network as part of a bundle -- the regulator said that while bundling remains important, Spark has a number of competitors now, which will continue driving prices lower without intervention.

"Wholesale services including Chorus' UBA and UFB-based wholesale services are becoming widely available and appear to compete with Spark's resale services. Our preliminary view is that due to the increasing availability of these types of competing wholesale services, the importance of resale access has diminished since our review in 2011," Gale said at the time.

"We consider that the other regulated services should stay in Schedule 1 of the Act, because they remain important wholesale inputs that support the supply of vibrant and competitive retail voice and broadband services."

The ComCom decided there were no reasonable grounds to investigate the interconnection with a fixed Public Switched Telephone Network (PSTN), including the origination and termination of calls; Chorus' unbundled bitstream access (UBA); Chorus' unbundled copper local loop (UCLL); Chorus' unbundled copper low frequency service (UCLF); Chorus' unbundled bitstream access backhaul; Chorus' unbundled copper local loop network backhaul; Chorus' unbundled copper local loop network co-location; local telephone number portability service; cellular telephone number portability service; and co-location on cellular mobile transmission sites.

"The other regulated services listed in Schedule 1 remain important wholesale inputs that support the supply of vibrant and competitive retail voice and broadband services. We don't consider there are reasonable grounds to consider moving to deregulation of these services at this time," Gale said.

The ComCom is due to publish a report next Tuesday on its final decision.

The regulator is also currently reviewing the non-price terms of Chorus' UBA service, examining whether the copper service will fulfil the medium-term needs of consumers.

During the UBA review, the ComCom is exploring whether the service is future proofed; whether there are incentives for Chorus to continue investing in and innovating on its UBA; and whether the UBA service should be aligned with technical specifications of the service in the fixed pricing principles.

The ComCom had released its UBA final pricing determination in December, setting it NZ$50 million lower than that applied when Chorus separated itself from Telecom -- though NZ$120 million higher than the original pricing proposed by the ComCom.

In February, Spark reported a net profit of NZ$158 million, up NZ$11 million or 7.5 percent from last year's NZ$147 million, while Chorus recorded a net profit of NZ$33 million -- a sharp decline of 48.4 percent from last year's NZ$64 million due to the UBA pricing decision.