As heralded in Cunliffe's stocktake announcement this year, the government today put in motion the review of the Telecommunications Obligations Service or TSO.
The reason we have "free local calls" which should really be called un-metered local calls is the TSO, a piece of legislation that subsumed the Kiwi Share agreement between the government and Telecom.
Every year, a certain amount of "TSO tax" is levied from each telco in New Zealand, based on its turnover. It's a lot of money too, and charged retrospectively since 2001. Last year, Vodafone got stung for $13.5 million for instance.
That money is payable to Telecom, to compensate for so-called unprofitable customers. These are worked out by Telecom at first, with the Commerce Commission adjusting them afterwards.
Here's the rub in the TSO scheme: the more successful you are competing against Telecom, the more you will pay.... to Telecom. And no, it cannot be revealed who the unprofitable customers are and Telecom refuses to give them up as well to other providers.
The above could all change with the review of the TSO though. Now the unprofitable customers become "constestable" and multiple providers would be allowed to compete to supply them. This means wireless operators could step in with for instance WiMAX or cellular technologies which may be cheaper to deploy than wired phone lines - which in either case cannot economically supply broadband over the greater distances required in rural areas unless fibre-optic cabling is being used.
Cheaper, Voice over IP technology will also be taken into account by the review but its two corner stones, free local calls and dial-up Internet access, remain.
Rural broadband is the another issue that the government's keen on, and it's conceivably one of the triggers behind the review. Late 2005, Telecom spat the dummy when the Commerce Commission granted TelstraClear regulated Unbundled Bitstream Service that was unconstrained in the downstream direction (but still had the 128kbit/s choke on the upstream).
Then manager of government and industry relations Bruce Parkes wrote to the Commerce Commission and said Telecom had decided to cease investment in DSLAMs for rural and provincial areas, citing the regulatory decision. As you can imagine, such a decision will not have sat well with the government.
A review of the TSO would've been necessary even without Telecom pulling investment in rural areas however. The new regulation that enforces an operational separation of Telecom's business means the TSO needs to be updated, to work with that model.
The TSO has been called an unfair subsidy for Telecom and a tax on other telcos trying to compete. Here's hoping the review will sort out some of those issues while maintaining the government's goals for society and the economy.