Orcon: Open Letter to Commerce Commission

23 June, 2009

Dr Mark Berry
Chair
The Commerce Commission of New Zealand
PO Box 2351
Wellington 6140

Dear Dr Berry

Commerce Commission must review sub-loop decision

Last week’s Commerce Commission decision on the unbundled sub-loop will create a non-competitive broadband market from which there will be only one beneficiary – Telecom.  The decision effectively removes the preceding two years’ improvements to the competitive broadband and fixed line telephone landscape in New Zealand.

Orcon was the first to unbundle the local loop. The resulting competitive pressure applied by both Orcon and Vodafone means consumers and commerce have received the following flow on benefits:

• Telecom’s Total Home product was introduced first in Auckland and then nationally in response to the Orcon Gold+ plan – this significantly lowered the cost of home-phone and broadband bundles nationally.
• The performance of Telecom broadband products has been improved nationally in response to faster LLU products.
• Telecom has fast tracked new technologies (specifically VDSL2) to compete with LLU-based providers.
• Telecom Wholesale has introduced aggressive “loyalty” offers to non-LLU carriers in an effort to prevent a competitive wholesale market from developing.

It would appear the Commission has failed to appreciate these consumer benefits did not result from Telecom’s agenda, but rather occurred only because of competitive pressures.

The pricing and terms set out in the commission’s sub-loop determination fail to protect consumers from a dominant player and risk returning Telecom to a monopoly position.

Orcon does not expect Telecom to subsidise the industry, nor that special rights or terms be afforded to any segment of the market.

We believe the decision is flawed for a number of reasons:

It relied on unaudited inflated cost information provided by the dominant player in the market.

• It has taken the short term view of Ethernet backhaul as opposed to dark fibre.
• It has accepted information from Telecom after the sub-loop conference concluded and without any industry feedback.
• International benchmarking has been ignored when reviewing Telecom’s efficiency and costs.
• It has assumed that a sub-loop investor could raise prices during the worst recession in 70 years.
• It enables the dominant company to proceed with its cabinet roll-out and by-pass the 24-month notice period required by law to give a fair go to those businesses that unbundled the telephone exchange loop (LLU);
• It affords no protection for LLU against technical interference from the cabinets service;
• It backtracked on sub-loop fibre backhaul (exchange to cabinet) prices following intensive lobbying from Telecom, raising them by some 10 times the price set out in the commission’s own draft.

Orcon believes that for New Zealand to compete in the future, our communities and businesses need a vibrant telecommunications industry.  In our view, this cannot be achieved when all carriers are forced to wholesale off Telecom.  It leaves little room for innovation, price competition and the introduction of new technology.

Consumers are aware of this and we have not been surprised by the level of public interest and debate generated as a result of the determination.

The Commission needs to explain its statements concerning the cost difference between UCLL and SLU.

While conscious of the significant resources and effort the commission and industry players have put towards reaching this decision we ask that you announce a review of the determination’s findings and inputs with a view to fully factoring in the views of non-Telecom stakeholders.

It could be 10 years before the government’s broadband-to-the-home plans become reality. In the meantime, should your decision stand, the majority of New Zealanders will be subject to 2nd class broadband from a monopoly provider.

Yours sincerely
Scott Bartlett
Chief Executive Officer
Orcon