NEW ZEALAND WATCHDOG BACKS CURBS ON MOBILE PHONE

UNCLAS WELLINGTON 000882

SIPDIS

STATE FOR EB/CIP FOR AHYDE AND EAP/ANP FOR TRAMSEY
STATE PASS TO USTR FOR BWEISEL
COMMERCE FOR 4530/ITA/MAC/AP/OSAO/GPAINE

E.O. 12356: N/A
TAGS: ECPS ECON ETRD NZ
SUBJECT: NEW ZEALAND WATCHDOG BACKS CURBS ON MOBILE PHONE
CHARGES

REF: (A) WELLINGTON 598; (B) WELLINGTON 428; (C) WELLINGTON

66


1. Summary: A draft decision issued October 18 by the New
Zealand Commerce Commission put telecommunications companies
on notice that the agency stood ready to intercede to cut
the fees charged to complete mobile telephone calls. Fees
now charged by the country's mobile-phone service providers
to terminate calls on their network were "significantly
above cost" and should be regulated, the Commerce Commission
said. The decision was welcome news to AT&T and other U.S.
carriers, which had complained of paying ever-increasing
fees when they pass calls onto New Zealand. The
Commission's final recommendation, expected in early 2005,
may or may not be the same as the draft decision. The
Communications Minister will ultimately make the final
decision later in the year. End summary.


2. The Commission, which began its investigation of mobile
termination rates in May (ref A),said mobile network
operators had been able to set unreasonably high rates
because of limited competition in the market. Telecom and
Vodafone charge about US 19 cents (NZ 28 cents) per minute
to terminate calls to each other's mobile networks. The fee
they charge overseas carriers has been almost 6 cents higher
and was expected to increase. The Commission said a
reasonable, cost-based charge would be US 11 cents (NZ 16
cents) per minute.


3. The Commission -- New Zealand's anti-monopoly watchdog --
predicted that regulated reduction in the rates would likely
increase competition in the fixed-to-mobile market, which
would result in lowering of the retail price for fixed-to-
mobile calls and higher numbers of such calls. The
Commission concluded that regulation would produce
substantial benefits for consumers and businesses.


4. It did not support regulating future high-speed, third-
generation mobile telephone networks, saying regulation
probably would increase the risk of delay or of limited
investment in the new technology. That technology allows
transfer of both voice and non-voice data.


5. The Commission stressed that the draft report reflects
its preliminary view. It will accept written submissions on
the report until November 16. It will hold a conference on
the mobile termination rate issue in late November and then
send its final recommendation to the Communications Minister
in early 2005. The minister could accept the Commission's
recommendations, reject them or refer them back for further
consideration.


6. Telecom, the country's largest fixed-line phone company
and second-largest mobile phone service provider after
Vodafone, contended that the mobile market was already
highly competitive and did not need regulation. Bruce
Parkes, Telecom's general manager of government and industry
relations, said regulation might lead companies to reduce
their investment in New Zealand. Vodafone asserted that
even if rates were regulated, the savings would not
necessarily be passed to the consumer but would be pocketed
by Telecom and TelstraClear, a claim that local news reports
pounced on. Meanwhile, TelstraClear, which resells
Vodafone's mobile phone services but is developing its own
mobile phone network, endorsed the Commission's draft
decision.


7. A copy of the Commission's 126-page decision can found on
its website, www.comcom.govt.nz.


8. Comment: We expect the Commerce Commission's final
decision to be consistent with its draft report. However,
we must note that the Commission is fully capable of
reversing course, having done so in its recommendation in
December against unbundling the local loop -- a turnabout
from its earlier draft position (ref c). The Communications
Minister affirmed that recommendation in May (ref b).

BURNETT