Joyce sharpens axe for TSO

Tuesday 29th September 2009

Communications Minister Steven Joyce plans to scrap the agreement with Telecom Corp. put in place to protect rural customers when the carrier was privatised and channel the funds into rolling out high-speed internet in isolated areas.

The Telecommunications Service Obligation (TSO) levy, which pays Telecom around $70 million a year in compensation for providing basic phone services to non-commercial customers in rural areas, with a single fund contributed to by all industry players, Joyce said in a statement today.

The TSO levy, which was introduced in 2001 and followed on from the Kiwishare scheme, is paid by participants on a market share basis and returned as compensation to companies which supply services to isolated customers.

“On the whole, it’s good to see certainty for the funding – it shows there’s some commitment,” said Chris O’Connell, chairman of the Telecommunications Users’ Association.

“There are pretty clear signs the government is prepared to use investment dollars to drive how infrastructure develops, which is different from the previous administration, which tried to change Telecom.”

The government held back from unveiling its rural broadband strategy earlier this month when it released the details of its plan to roll out ultra-fast broadband. Today’s announcement shows how it aims to fund isolated areas to the tune of $300 million.

The market appears to be taking the announcement as another sign that regulators are more hands-on than would have been expected under the National-led government, according to Rickey Ward, an equities manager at Tyndall Investment Management.

“It appears to the market that people are waving big sticks at Telecom,” Ward said.

The shares fell 1.9% to $2.60, and have climbed 14% this year.

Joyce said some $48 million of taxpayer money will be directly injected into the initiative, with up to $252 million redirected from the $1.5 billion national broadband fund over the next six years. The redirected monies will be repaid by the replacement to the TSO levy.

“We’re proposing to fund the $300 million rural initiative through a combination of direct government funding and revenue from a more transparent and effective industry levy than the current TSO levy,” said Joyce in a statement.

“A recent review of the TSO had identified that the current methodology for assessing how much the TSO commitment was costing Telecom a year was flawed.”

The proposed levy is expected to average $50 million a year for the first six years, and will fall to no more than an annual $10 million thereafter, according to the Ministry of Economic Development discussion document.

The current levy is around $76 million. MED expects to implement the new regulation by July next year.

The MED report found the TSO methodology had included the costs incurred by Telecom, but not the full range of benefits the telecommunications company gained from the agreement.

Last month Vodafone New Zealand pressed the company and Commerce Commission to give up the list of around 60,000 customers deemed non-viable for which Telecom is subsidised to provide phone services.

As part of the push for greater transparency, the country’s largest listed phone company will have to release details on the location of commercially non-viable customers to open up competition from other providers.

This will suit Vodafone New Zealand, which has teamed up with satellite internet service provider Farmside to tap the rural sector.

Joyce was quick to stipulate that the changes will not alter the obligation on Telecom to provide basic phone services to rural customers, nor will it result in looser foreign ownership rules for the phone company.

Vodafone is pleased with the announcement regarding the TSO, and communications manager Paul Brislen confirmed the phone company will be making a submission.

Businesswire.co.nz

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