US embassy cable - 04WELLINGTON882

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