Form of separation: STRUCTURAL
Infrastructure: Chorus
Retail: Telecom NZ
Non-Discrimination: EoI
Supervisory Committee: NO
New Zealand's Structural separation
- Structural separation (from 2011): In December 2011, the vertically integrated (but functionally separated) incumbent Telecom NZ (rebranded as Spark in 2014) split itself into two separately listed companies under different ownership:
- Chorus Ltd: the fixed infrastructure company; and
- Telecom NZ: the fixed retail service provider.
- Supervisory board (until 2011): Independent Oversight Group (IoG) established by Telecom NZ in 2008 (during its functional separation) to monitor, investigate and report potential breaches of the undertakings to Telecom NZ’s board and to the Commerce Commission. The IOG ceased to exist after the 2011 structural separation , with the Commerce Commission now responsible for monitoring Chorus’ compliance with the new structural separation undertakings.
- Elements of equivalence: EoI > all regulated fixed access services
Model of separation adopted
According to Cullen International research, New Zealand provides the only known case of voluntary structural separation.
In December 2011, the vertically integrated (but functionally separated) incumbent Telecom NZ (rebranded as Spark in 2014) split itself into two separately listed companies under different ownership:
- Chorus Ltd: the fixed infrastructure company; and
- Telecom NZ: the fixed retail service provider.
Telecom NZ decided on structural separation for strategic reasons and as a means of relieving itself from the operational complexities related to the then-existing regulations on functional separation.
Structural separation was the only way for Telecom NZ to take part in the government’s Ultra- Fast Broadband network (UFB) initiative introduced in 2009. The UFB plan aimed to cover 87% of the population with FTTH by the end of 2022, mainly with public money. The UFB plan was implemented through a public-private partnership, with a government agency charged to oversee the UFB. Crown Infrastructure Partner Limited (Crown) would contract with telecoms operators but only those that sold infrastructure services but did not also offer retail services to consumers or businesses. Therefore, Telecom NZ had two choices:
- implement separation in order to be able to bid in the UFB tender; or
- not take part in the UFB programme, i.e. in practice competing with the government programme.
In addition, Telecom NZ could benefit from the structural separation because this would allow the removal of its existing onerous functional separation undertakings that had been imposed by the government in 2006. Telecom NZ had found that these functional separation undertakings were increasing the company’s costs, creating process difficulties, adding complexity and making it hard for Telecom NZ to serve customers well. For instance, functional separation had required a massive overhaul of Telecom NZ’s IT systems just to ensure that the retail unit staff could not see details of the agreements made by the other (access and wholesale) units.
Organisational and governance structure
On 1 December 2011, Telecom NZ implemented structural separation, with its network access division, Chorus, becoming a standalone, publicly listed company.
Chorus owns and operates the fixed line access infrastructure, including: the copper network; fibre access network; ducts and manholes; major telephone exchange buildings; and electronic equipment, such as DSLAMs and Ethernet aggregation switches. Telecom NZ retained the mobile and PSTN networks, and a national backhaul network.
Chorus is listed on the New Zealand stock exchange, with its own independent board of eight directors (seven independent directors and the managing director). Ownership restrictions apply to Chorus, with the Crown’s approval required if:
- any person or company acquires a shareholding of 10% or more; or
- any foreign company acquires a shareholding of more than 49.9%.
As noted above, prior to the structural separation, Telecom NZ had been functionally separated. In December 2006, the government passed a Telecoms Amendment Act, requiring the functional separation of the vertically integrated incumbent. This model of separation was inspired by the form of functional separation previously adopted in the UK for British Telecom.
The regulatory steps of Telecom NZ’s model of separation are summarised in the table below:
|
Step |
Date |
Source |
Actions |
|
1 |
18 Dec. 2006 |
With the aim to promote competition in the telecoms market by introducing transparency, non-discrimination and EoI obligations, the government required the establishment of three separated business units:
Access network unit: managing the local access network (what became Chorus). Wholesale unit: providing wholesale products to service providers (without owning the assets). Retail unit: providing fixed-line, mobile and internet services. |
|
|
2 |
31 March 2008 |
Minister for Communications and Information Technology: Telecom Operational Separation |
Telecom NZ implemented functional separation and established a supervisory committee. |
|
3 |
1 Dec. 2011 |
Telecommunication Amendment Act with structural separation undertakings 2011 |
Telecom NZ (rebranded as Spark in 2014) split into two listed companies under different ownership: Chorus Ltd: the fixed infrastructure company; and Telecom NZ: the fixed retail service provider. |
The functional separation undertakings of 2006 provided for the establishment of a supervisory committee with monitoring tasks and duties similar to those of the Equality Access Board in UK and the Organo di Vigilanza in Italy. Telecom NZ established the Independent Oversight Group (IOG) in 2008 to monitor, investigate and report potential breaches of the undertakings to Telecom NZ’s board and to the Commerce Commission. The IOG had five members, three independent and two appointed by Telecom NZ after consultation with the Commerce Commission.
The IOG ceased to exist after the 2011 structural separation, with the Commerce Commission now having the responsibility to monitor Chorus’ compliance with the new structural separation undertakings.
Elements of equivalence and non-discrimination
Chorus submitted equivalence and non-discrimination undertakings on 6 October 2011, in accordance with Part 2A of the New Zealand Telecommunications Act.
Chorus must ensure that access seekers can purchase access on an EoI basis, with the same timescales, terms and conditions, and the same systems and processes. Chorus must not discriminate between access seekers or favour any Chorus-related party.
Chorus developed KPIs in consultation with the Commerce Commission to monitor compliance with its equivalence and non-discrimination obligations. In addition, Chorus developed an employee code of conduct and is subject to certain reporting obligations.
Chorus is obliged to disclose any material breach of the abovementioned undertakings to the Commerce Commission as soon as is reasonably practicable (but in any event no later than 20 working days) after Chorus becomes aware of that breach.
As far as fibre is concerned, Chorus will be subject to price-quality and information disclosure regulation from 1 January 2022.
The price-quality regulation will regulate the total revenue Chorus can recover from providing regulated fibre services, and the quality at which those services are provided. The price-quality path is intended to create incentives for Chorus to act in ways that are consistent with the long-term benefit of end users, such as creating incentives to (i) invest in its network, (ii) innovate and improve efficiency, and (iii) deliver services at a level that meet end-user demands.
Information disclosure regulation will require businesses to periodically publish information about their performance. This will include important data on pricing, current and future expenditure, quality performance, and financial statements. In the future, the Commerce Commission will provide analysis of this information to help interested parties understand how fibre providers are performing individually and when compared to others.