1 Overview of Telecom s structural separation proposal Mark Ratcliffe
2 Regulatory principles The purpose of regulation in telecommunications is to manage competitive access to economic bottlenecks and to address potential problems arising from limited competition. The Telco Act s purpose is to promote competition for the long term benefit of end users. There is an inherent tension in this principle between promoting competing and promoting investment. Good regulatory practice requires regulation to be rolled back when the reasons for introducing it no longer apply: either market competition improves, or assets are no longer an economic bottleneck. Taken together, UFB and Telecom s structural separation change the playing field so significantly that we need to take a fresh look at what needs to be regulated and why.
3 Importance of regulatory reform The existing multi layered regulatory structure needs to be simplified and some of the inconsistencies dealt with. UFB establishes a new industry model focussed on a migration to fibrebased delivery. It s important to set the new model up for success. At a high level it is important to align the industry models for fibre and copper, and therefore the approach to regulation. Telecom has offered structural separation as an alternative to operational separation. The structural separation of Telecom also requires a fresh look at the approach to regulation of copper based services, including the TSO, because Telecom is no longer vertically integrated.
4 Why is Telecom considering a split? The government s Ultra fast Broadband (UFB) initiative sets out a new vision for the telecommunications industry in New Zealand. It envisages anew access network company or companies that are focused on delivering fibre optic access infrastructure, and are separate from retail companies that sell services to end users. Telecom s national UFB proposal includes an offer to split into two separate companies, consistent with this model. In this presentation we outline what we mean by structural separation and broadly how we see that happening.
5 What does structural separation mean? Structural separation means that two entirely separate companies would replace Telecom as it exists today. The two separate companies would be: Chorus2* A nationwide fixed line access network infrastructure operator that will offer services to retail service providers on an open access basis. Essentially, Chrous2 will be similar to the existing Chorus business with the addition of layer 2 services (copper and fibre) and related assets. ServCo* A retail focused telecommunications business comprising Telecom s fixed, mobile and ICT businesses. ServCo will build and deliver services to end users using the Chorus2 network, just like every other retail service providers. It will also wholesale some services and own mobile infrastructure. *Chorus2 and Servco are notional names for the new entities.
6 The split
7 The split
8 The split
9 What does structural separation mean? Assets, systems, services, people and everything else in Telecom today would be split between the two companies. Under the proposed structure any dealings between the two companies would be formalised in arms length commercial arrangements as occurs between any other companies. Each company would have its own board of directors, CEO, management team and employees, and would be separately listed. *Chorus2 and Servco are notional names for the new entities.
10 Chorus2 Under Telecom s structural separation proposal Chorus2 would: Provide nationwide access services to all retail service providers on an open access basis; Offer both layer one and layer two services on copper and fibre; Offer regional backhaul services; Manage the migration of customers from copper to fibre in a way that minimises disruption and drives fibre uptake; Be forbidden from moving downstream and operating a retail telecommunications business; Be a publicly listed company.
11 ServCo Under Telecom s structural separation proposal ServCo would: Purchase Chorus2 services like any other retail service provider and compete on an equal footing with all other retail service providers; Provide fixed line access and calling, broadband, mobile and ICT products and services to business and residential customers; Provide some wholesale services to other retail service providers; Offer national backhaul services; Own and manage its own mobile telecommunications network; and Be a publicly listed company.
12 Asset Splits The demerger process to split into two separate companies would involve allocating ownership of all Telecom s current assets and systems to either Chorus2 or ServCo. Chorus2 Layer 1 assets copper, fibre, physical plant, most exchange buildings Layer 2 assets DSLAMS and most other access electronics Regional backhaul ServCo Mobile network, PSTN and other service platforms (e.g. messaging) Ethernet aggregation* National backhaul * Represents the day 1 split. In due course Chorus2 will develop its own Ethernet aggregation assets.
13 Transition of Services UCLL Demerger UCLL UCLL Co-lo UCLL Co-lo UCLL Backhaul UCLL Backhaul Chorus SLU Co-lo SLU Backhaul SLU UCLL SLU Co-lo SLU Backhaul SLU UCLL Chorus2 Telecom Today Enhanced Services Radio Comm (non-mobile) Colo Commercial Co-lo & Backhaul FTTP Access Service HSNS & UPC Wholesale VDSL2 Service Enhanced Services Radio Comm (non-mobile) Colo Commercial Co-lo & Backhaul FTTP Access Service HSNS & UPC Wholesale VDSL2 Service Telecom Wholesale UBR Backhaul UBS UBA UBA Backhaul Tail Extension Service IP Interconnect Local Backhaul Naked UBA UBA + POTS Bundle National/ Intercity Backhaul Tail Extension Service IP Interconnect ServCo Resale PSTN Access
14 What we d like to know from our customers What works well with the current regime What isn't working well and needs fixing What aspects of a Telecom structural separation really matter
15 Overview of Telecom s structural separation proposal
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