TSO Review Team Ministry of Business, Innovation & Employment 33 Bowen Street Wellington tsoreview2013@mbie.govt.nz

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1 SUBMISSION To: TSO Review Team Ministry of Business, Innovation & Employment 33 Bowen Street Wellington 6011 Submission on: Review of the Telecommunications Service Obligations (TSO) for Local Residential Telephone Service Discussion Document From: Federated Farmers of New Zealand Date: 20 August 2013 KARA LOK POLICY ADVISOR Federated Farmers of New Zealand PO Box 715, Wellington 6140 P F

2 1. INTRODUCTION 1.1 Federated Farmers welcomes the opportunity to submit to the Ministry of Business, Innovation and Employment (MBIE) on the Review of the Telecommunications Service Obligations (TSO) for Local Residential Telephone Service. 1.2 This submission addresses the questions asked by MBIE in the TSO for Local Residential Telephone Service Discussion Document. The recommendations and comments in this submission are based on the responses the Federation received to two online members survey, one conducted in March 2013 and another conducted in July Federated Farmers will primarily focus how the TSO services are currently deployed in rural areas and how they could potentially be improved to better service rural end users. 1.4 The Federation would like to remain involved in any further discussions around the development and review of the TSO for Local Residential Telephone Service. 2. SUMMARY OF RECOMMENDATIONS 2.1 Federated Farmers recommends MBIE s TSO Review Team consider the following recommendations before deciding how to proceed: a. Ensuring rural areas TSO services continues to improve becomes a medium term future TSO policy objective; b. The TSO services continue to be delivered; c. All telecommunication platforms which have the ability to provide internet are covered by the TSO deeds; d. The existing TSO service performance measure of a minimum connection speed of 14.4 kbps and 9.6 kbps is increased to reflect the rollout of the Rural Broadband Initiative and Ultra Fast Broadband; e. A specific review clause is added so the TSO performance measures can be updated to reflect advances in telecommunication technology and major changes in consumer demands and expectations; f. The TSO deed is technology neutral; g. The 2001 requirement to retain the availability of voice services, and the capability to access dial- up services is maintained to at least December 2001 coverage levels is amended to reflect the availability of the TSO services as at August GENERAL COMMENTS 2

3 3.1 Federated Farmers believes there is a continued need for the TSO for Local Residential Telephone Service. 3.2 We believe the deed should be updated to reflect the changes in the market and the roll out of the Rural Broadband Initiative (RBI) and Ultra Fast Broadband (UFB), which will bring fast reliable internet to 97.8 percent of New Zealand s households. 3.3 The TSO needs to set the regulatory mechanisms in place to ensure telecommunication companies can continue to service rural consumers and improve rural connectivity with the technology available. 3.4 Federated Farmers members value the services delivered under the TSO and want these services to continue. 3.5 The TSO deeds for Local Residential Telephone Service play a significant part in ensuring rural areas have access to affordable telecommunication services. 3.6 A large portion of Federated Farmers members are heavily reliant on their fixed landline and the free local calling option because there is no mobile coverage in their area. Around 85 percent of our members who responded to our online survey said they find the free local calling very useful and over sixty percent still use their fax machines around once a month as it is a viable alternative when their satellite broadband is not working. 3.7 While a portion of rural New Zealand does have some internet capability it is often provided either via satellite, which is expensive and unreliable, or via a fixed dial up connection which is slow, unreliable and time consuming. 3.8 At present rural customers are more costly to service and there is a real risk if there is no deed, telecommunication providers could focus on the more densely populated areas where the economics make the most sense and provide very limited telecommunication services to rural end users. 4. COMMENT ON CHAPTER 1: INTRODUCTION 4.1 In this section of our submission Federated Farmers will answer the questions asked by MBIE in Chapter 1 of the TSO for Local Residential Telephone Service discussion document. 4.2 Federated Farmers is relatively happy with the way MBIE s TSO review team has interpreted the review s objectives. We support the use of Treasury s Guide to Best Practice Regulation best practice principles to identify the review s regulatory objectives; Proportionality; Growth supporting; and Flexibility However, when interpreting objective (a), the review team needs to recognise the long term interests of the end users of telecommunications services is different depending on where they are based in New Zealand. 2 1 Pp. 10 Review of the Telecommunications Service Obligations (TSO) for Local Residential Telephone Service Discussion Document, Ministry of Business, Innovation and Employment, July Review Objective a. the long-term interest of end-users of telecommunications services; Pp. 11 Review of the Telecommunications Service Obligations (TSO) for Local Residential Telephone Service Discussion Document, Ministry of Business, Innovation and Employment, July

4 4.4 The long term interests of an urban end user are very different to their rural counterpart s long term interests. The telecommunication services available in some rural areas are still very limited and some areas are currently only serviced via a fixed land line, while urban areas have several platforms they can choose from. Federated Farmers believes the TSO exists to address this imbalance. 4.5 The rollout of the RBI, the UFB and the potential for the 700MHZ spectrum to be utilised to deliver LTE services in rural areas, will improve rural connectivity. However, there will still be some areas with very limited telecommunication services if any. It is in these areas which are where the commercially non-viable customers are based who are reliant of the TSO to ensure they are serviced Federated Farmers has no further comments to make on how best to interpret the remaining review objectives (c), (d), (e) and (f). 5. COMMENT ON CHAPTER 2: THE TSO REQUIREMENTS 5.1 In this section of our submission Federated Farmers will answer the questions asked by MBIE s TSO Review Team in Chapter 2 of the TSO for Local Residential Telephone Service discussion document. 5.2 Federated Farmers supports the current deeds requirements: ensuring rural pricing is in line with urban pricing; limitations on price increases; local Calling option; and Availability of voice services; and the capability to access dial-up data services, maintained to at least December 2001 coverage levels. 5.3 We are relatively supportive of the policy objectives for each of these requirements. Ensuring affordable telecommunication services are accessible in rural areas is extremely important to Federated Farmers members. 5.4 As stated in section 3 of this submission, Federated Farmers members value the services provided by Telecom and Chorus. For a lot of rural end-users a fixed land line is their main means of telecommunication because there is limited mobile and internet access in rural areas. 5.5 The Federation believes the Service and Network Deeds have operated in practice the way they were designed to operate. Federated Farmers commends Telecom and Chorus for adhering to the deeds and ensuring rural end-users continue to have access to fixed landlines at similar rates to urban end-users. 5.6 Federated Farmers recommends that ensuring rural areas TSO services continues to improve becomes a medium term future TSO policy objective. 6. COMMENT ON CHAPTER 3: TRENDS IN THE TELECOMMUNICATIONS INDUSTRY 3 Review objective b. the long-term interests of commercially non-viable customers; Pp. 11 Review of the Telecommunications Service Obligations (TSO) for Local Residential Telephone Service Discussion Document, Ministry of Business, Innovation and Employment, July

5 6.1 In this section of our submission Federated Farmers will answer the questions asked by MBIE s TSO Review Team in Chapter 3 of the TSO for Local Residential Telephone Service discussion document. 6.2 Although telecommunications technology has progressed markedly since 2001 (for example, there has been the emergence of the 3G and 4G technologies, fixed and wireless broadband), rural areas are still limited by the technology which is available. 6.3 There is still a major difference between rural end-users and their urban counterparts. Despite Vodafone expanding its operations and purchasing Telstra Clear and 2degrees expanding their network and increasing their market share, New Zealand s market is still too small for the sector to be fully opened up to market forces. 6.4 Around 86 percent of Federated Farmers members who responded to our March survey have landlines provided by Telecom. Telecom still has a monopolistic share of the market, especially in rural areas, where it is often the only provider. 6.5 Many Federated Farmers members are still relying on satellite and dial up internet connections. Around 35 percent of Federated Farmers members who responded to the telecommunications member survey in March of this year received internet through their landline, while 27 percent received wireless internet. It makes sense that our members would use less than 10GB a month when one looks at the cost of even being able to use this much data Fifty-one percent of our members internet is provided by Telecom, while around 37 percent are serviced by Farmside, around six percent are serviced by Vodafone, five percent by Telstra Clear and the remainder receive internet from small local Internet Service Providers (ISP) such as Xnet, Woosh, Orcon and Snap. 6.7 While the Rural Broadband Initiative (RBI) will mean rural end-users may have more choice regarding how they receive the internet, there will still be a small portion who receive the internet through their landline and the Unbundled Cooper Local Loop (UCLL). 6.8 Federated Farmers agrees with the TSO Review team that remote rural areas are likely to remain on PSTN voice and dial-up services in the near to medium term future. 7. COMMENT ON CHAPTER 4: THE CONTINUED NEED FOR A TSO 7.1 In this section of our submission we will comment on each of the services delivered under the TSO deeds. 7.2 Federated Farmers believes that given the size of New Zealand s telecommunications sector and the way New Zealand s population is dispersed, we still need the TSO to ensure un-economic customers are offered telecommunications services. 7.3 Our members want the current services delivered under the TSO deeds to be retained. As stated in section 3, for a portion of the Federation s members their landline and fax connection is their main means of communication. This is because they have limited internet options which can be unreliable and expensive. 4 Farmside s satellite rates 5

6 7.4 Federated Farmers recommends the TSO services continue to be delivered. 7.5 Ensuring rural pricing is in line with urban pricing 7.6 New Zealand s population is largely centred around the bigger centres such as Auckland, Wellington and Christchurch. While it is economic for a telecommunications provider to service these areas, it becomes increasingly uneconomic to service areas lacking the population density to cover the costs of telecommunications infrastructure. 7.7 New Zealand does not have a large enough market for the telecommunications service sector to be fully opened up to market forces. With the huge difference between a big urban market that is relatively easy to service and a small rural market that is relatively difficult to service. 7.8 Therefore the Federation believes there is a need for a TSO to ensure all end-users long-term interests if telecommunication services are covered. If the requirement for the TSO provider to ensure rural pricing is in line with urban pricing is removed from the service deed, then rural end users could end up paying a lot more than urban users for telecommunications services. This is because of the way New Zealand s population is dispersed. 7.9 If this was to happen the urban rural divide would be more of a problem. It could make the existing problems rural areas are trying to overcome even more challenging, such as attracting and retaining skilled medical professionals, distance learning and running a viable agricultural business Local free calling for standard voice calls 7.11 Federated Farmers believes free local calling for standard voice calls should be continued to be provided under the TSO deeds A large portion of Federated Farmers members are heavily reliant on their fixed landline and the free local calling option because there is no mobile coverage in their area. Around 85 percent of our members who responded to our survey find this option very useful and a further 11 percent they found it useful A single standard listing in the Telephone Book 7.14 Around 97 percent of our members who responded to the TSO survey primary residential landlines are listed in the phone book and 65 percent find this service very useful Federated Farmers members rely on the White Pages so other people can contact them and so they can get in touch with others One residential line 7.17 Federated Farmers members find this service very useful. Ensuring Telecom has to provide one fixed residential line ensures Federated Farmers members can access 6

7 other services via the telephone. This is particularly important for areas where there is no mobile coverage Free standard voice calls for genuine emergencies to 111 emergency service centres 7.19 Federated Farmers agrees with the findings of the 111 review conducted by MBIE in February of last year. We agree with MBIE s findings that the current service delivery model of the Initial Call Answering Platform (ICAP) provided by Telecom operates effectively Local free calling for standard facsimile (fax) calls 7.21 A large portion of Federated Farmers members still use their fax machines to send and receive information. This is acknowledged by the TSO review team in the discussion document. In areas where terrestrial broadband is not available facsimile equipment is still widely used to transfer documents Around 63 percent of the respondents to Federated Farmers TSO member survey have a fax machine. Around 69 percent of this group use their fax machine at least once a month and 48 precent said they found this service useful If the local free calling for standard internet calls is no longer guaranteed by the TSO, then farmers who do not have broadband or wireless internet may be disadvantaged and lose the ability to send a fax While, the rollout of the RBI and the UFB an increasing number of people will have broadband and they will no longer need to rely on the facsimile technology there will still be areas who will continue to rely on the facsimile technology Local free calling for standard internet calls 7.26 Around 36 percent of Federated Farmers members who responded to our telecommunications survey in March still receive internet via a landline. Two percent of this group are on dialup while 34 percent receive broadband via a fixed connection Once the RBI and UFB initiatives have been rolled out and are up and running by the end of percent of New Zealand s population will be able to access broadband peak speeds of at least 5Mbps As a result of this Federated Farmers believes the current TSO s performance measures need to be amended Federated Farmers recommends the existing TSO service performance measure of a minimum connection speed of 14.4 kbps and 9.6 kbps is increased to reflect the rollout of the Rural Broadband Initiative and Ultra Fast Broadband Federated Farmers believes the TSO needs to reflect the advancement in technology and New Zealand s increasing connectivity. 5 Pp. 2 Review of 111 calling Findings December 2021, Ministry of Business, Innovation and Employment, December 2012 ( 6 Pp. 37, Review of the Telecommunications Service Obligations (TSO) for Local Residential Telephone Service Discussion Document, Ministry of Business, Innovation and Employment, July

8 7.31 Federated Farmers recommends that all telecommunication s platforms which have the ability to provide internet are included in the TSO deeds We believe in order for the TSO to be a long standing, the deeds need to be future proofed Federated Farmers recommends the TSO deed is technology neutral Federated Farmers recommends a specific review clause is added so the TSO performance measures can be updated to reflect advances in telecommunication technology and major changes in consumer demands and expectations Federated Farmers recommends the 2001 requirement to retain the availability of voice services, and the capability to access dial- up services is maintained to at least December 2001 coverage levels is amended to reflect the current market. 8. COMMENT ON STATUS QUO 8.1 While Federated Farmers is in favour of retaining the services currently delivered under the TSO, we believe as stated in section 7 above some alterations could be made to reflect the changes in the telecommunications sector. 9. COMMENT ON OPTION 1 - MINIMAL CHANGE 9.1 Federated Farmers has reservations about allowing Telecom to choose any delivery platform. Instead we would prefer the decision of what platform the service is delivered though to be made by the end-user. 9.2 As stated in section 7, the Federation supports a technology neutral approach, where the services covered by the deeds can be provided through any platform. 10. COMMENT ON OPTION 2 - MEDIUM CHANGE 10.1 Federated Farmers supports the TSO provider having to provide voice services and capability to access a data service via any technology, as stated in section We are also supportive of MBIE potentially recalculating the line rental price to better reflect industry costs instead of using the Consumer Price Index as the guage for price increases. However, this would have to be regulated by the Commerce Commission. 11. COMMENT ON OPTION 3- SIGNIFICANT CHANGE 11.1 Federated Farmers supports in principle enabling more telecommunication companies to provide TSO services under the service and network deeds. There is no reason why other companies should not be given the opportunity to provide TSO services. This is also recognises that Telecom and Chorus are not the only network operators who could provide these services. 12. ABOUT FEDERATED FARMERS 12.1 Federated Farmers is a member based organisation that represents farmers and other rural businesses. Federated Farmers has a long and proud history of representing the needs and interests of New Zealand s farmers. 8

9 12.2 The Federation aims to add value to its members business. Our key strategic outcomes include the need for New Zealand to provide an economic and social environment within which: Our members may operate their business in a fair and flexible commercial environment; Our members families and their staff have access to services essential to the needs of the rural community; and Our members adopt responsible management and environmental practices. 9