Telecommunications

Description

Background and history

233. Telecommunications services include fixed line (landline and data services such as cable broadband) as well as wireless services.

234. The telecommunications services market in New Zealand was fully opened to competition in 1989 with any entity with at least 10 customers being able to register as a network operator. Since then, telecommunications planning and product advances have developed in the market place, with the government’s role largely confined to that of regulator. A number of new telecommunications players entered the market over this time, including Internet service providers. The two biggest entrants were Vodafone and TelstraClear.

235. In 2006, due to concern at Telecom’s dominance over the infrastructure, the Crown decided that there needed to be more regulation to deliver better competition in the telecommunications market. Local loop unbundling in 2006 and the operational separation of Telecom in 2008[59] are the most visible outcomes of this regulatory approach.

236. Trends in the major categories of telecommunications retail revenue over the 2005/06, 2006/07 and 2007/08 financial years are as follows:

Total Retail Telecommunications Revenues

Source: Commerce Commission 2008 Telecommunications Market Monitoring Report

237. Commercial investment in telecommunications is often “lumpy”. However, assets are scaleable to an extent not seen in other infrastructure sectors – for example, once the ducting is in place, it is becoming increasingly easier to exponentially increase the available data capacity.

238. As shown in the next figure, surveyed retail carriers reported total capital expenditure of $918 million in 2005/06, $1,069 million in 2006/07 and $1,184 million in 2007/08. Capital expenditure across the whole telecommunications industry is likely to be significantly higher than this because of investment by firms who were not surveyed because they were not Telecommunications Carriers Forum (TCF) members with a retail business. This would include investment by telecommunications wholesalers such as Kordia, FX Networks, CityLink (now owned by TeamTalk), Vector, and new mobile entrant NZ Communications (2degrees).

239. Kordia reported that in 2007/08 it spent $38 million on the acquisition of property, plant and equipment.[60] This was up from $27 million in 2006/07 and $17 million in 2005/06. Vector reported capital expenditure on its communications business of $18 million in 2006/07, up from $13 million in 2005/06. For 2007/08, Vector reported a combined capital expenditure on communications and metering of $28 million.[61]

240. Total capital spending is significant, as shown in the following:

Industry Capital Expenditure

Source: Commerce Commission 2008 Telecommunications Market Monitoring Report

241. However, much of the reported investment, particularly in the case of Telecom, would not have added to the net stock of telecommunications infrastructure because it would have been spent on replacing existing capital assets at the end of their economic lives. For example, Telecom reported depreciation and amortisation totalling $529 million in 2005/06, $570 million in 2006/07 and $617 million in 2007/08.[62]