The Commerce Commission has released its telecommunication service obligations (TSO) determination covering the 2006/07 year for Telecom's local residential telephone service. The final TSO cost is $61.36 million for 2006/07.

The final TSO cost has decreased from that calculated in the draft determination, which was $62.86 million. This change has largely been due to a change in the weighted average cost of capital (WACC) used between the draft and the final determinations. In the draft, the Commission used a WACC of 6.4 per cent. This was revised downwards to 6.3 per cent in the final determination.

Under the TSO, Telecom is obliged to provide certain local residential telephone services to residential customers who may not otherwise be provided with those services at an affordable price. The Commission calculates the net cost of those services, which are met by the telecommunications industry.

The total cost for 2006/07 will be shared between Telecom, TelstraClear New Zealand Limited, WorldxChange Communications Limited, Vodafone New Zealand Limited, CallPlus Limited, Compass Communications Limited, Teamtalk Limited, Woosh Wireless Limited and ihug Limited. The total cost is shared in proportion to their liable revenues. Telecom bears approximately 70 per cent of the TSO cost; Vodafone bears 24 per cent, TelstraClear 5 per cent and 1 per cent is shared between the remaining companies.

A copy of the Commission's final determination will be available by 1pm on 7 October 2009 on the Commission's website www.comcom.govt.nz under 2006-2007 TSO Determination.

Background

The TSO Deed for Telecom's Local Residential Telephone Service Obligations is a TSO instrument under Part 3 of the Telecommunications Act and is the successor to the Kiwi Share. The TSO was established by the Crown to facilitate the supply of certain telecommunications services to groups of end-users within New Zealand to whom those services may not otherwise be supplied on a commercial basis or at an affordable price.

The Commission administers this TSO Deed by:

  • monitoring compliance with the TSO Deed by Telecom;
  • determining the net cost faced by Telecom of complying with the TSO instrument during the financial year in accordance with the Telecommunications Act;
  • determining which companies qualify as 'liable persons'; and
  • determining the apportionment of this net cost among the liable persons and Telecom.

The 'liable persons' are companies whose networks are interconnected with Telecom's PSTN and who provide telecommunications services to end-users through their public switched telephone networks (PSTNs).

The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets.