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Commission recommends revisiting the regulation of Spark’s wholesale voice services in two years

22 December 2016

The Commerce Commission has completed its investigation of whether to recommend to the Minister for Communications that Spark’s wholesale voice services provided on copper lines should be deregulated.

Retail service providers (RSPs) buy Spark’s wholesale voice services to sell bundled with broadband. In doing so, RSPs avoid investing in their own voice facilities or switching customers to an internet-based voice service.

“The availability of the wholesale voice services in the Act has helped new RSPs enter the market and has intensified competition”, said Telecommunications Commissioner Dr Stephen Gale.

RSPs currently buy Spark’s wholesale voice services by commercial agreement but the Telecommunications Act provides a regulatory backstop. We could compel Spark to supply these services at a margin less than its own retail price if commercial arrangements fail in a way that threatened competition.

Dr Gale said the Commission’s investigation found that Spark is facing increasingly effective competition to its wholesale voice services. However, the ability of RSPs to switch quickly to alternatives is still constrained.

“There are a range of alternatives in the market that allow RSPs to supply voice-only services as well as bundles of voice and broadband. But the constraint on RSPs switching to alternatives quickly and easily may allow Spark to disrupt competition if the regulatory backstop were removed from the Act now.” Dr Gale said.

“We believe this constraint on switching will diminish in the near future, so we are recommending that the Minister defers the decision so we can revisit our recommendation in two years’ time.”

A copy of the Commission’s final report can be found on our website.

Background

Schedule 1 of the Act contains the regulated wholesale services. The three wholesale voice services that are the subject of this review are used by RSPs to supply the most common retail telecommunications services to end-users. As markets evolve, new retail services are developed and wholesale service providers can face increased competition, to an extent that it may no longer be necessary to mandate access to a service through Schedule 1 of the Act.

As a result, we are required to periodically consider whether there are reasonable grounds for commencing an investigation into whether to omit each wholesale service from Schedule 1 of the Act. The Commission reviews each service every five years by assessing whether competition may have developed to such an extent that continued regulation is no longer needed to promote competition in telecommunications markets for the long-term benefit of end-users.

In June 2016, we concluded a review where we decided that there were reasonable grounds to commence an investigation into whether Spark’s three wholesale voice services should be omitted from Schedule 1 of the Act. The three wholesale voice services in Schedule 1 of the Act that we considered there were reasonable grounds to investigate removing are:

  • local access and calling service offered by means of fixed telecommunications network
  • retail services offered by means of a fixed telecommunications network
  • retail services offered by means of a fixed telecommunications network as part of a bundle of retail services.

We started our investigation into whether Spark's three wholesale voice services should be omitted from Schedule 1 of the Act on 14 July 2016. We are recommending these services should remain in the Act and the Minister defers that decision for a period of two years from the date of our final report.