For what it's worth, Telecom is set to remain a closed shop, and New Zealanders set to share the same local calling plan. Quiet chaps like Tuanz boss Ernie Newman will continue to subsidise "the verbal excessess of your teenage daughters."

This morning, Labour Communications and IT spokeswoman Clare Curran said that "free" local telephone calls were under threat.

Pointing to cabinet papers now available on the Ministry of Economic Development website, which summarise the government’s series of regulatory reviews, Ms Curran said that Telecommunications Service Obligation (or TSO, formerly known as the Kiwi Share) was in peril.

$42 worth of free
The TSO enshrines "free" local phone calls (that is, unlimited local calls under a $42 monthly home line plan); requires any investor seeking a 10% or greater stake in Telecom to gain government approval; requires 50% of Telecom directors to be NZ citizens; and provides for subsidised service to so-called "commercially non-viable" customers in rural areas.

Noting that the Overseas Investment Act is also under review - as announced by Bill English in March - Mr Curran said the ground was being cleared for a foreign investor to take control of Telecom.

This afternoon, Mr Joyce responded:

“Free local calls will not be axed under this government. The idea is not even on the table.

“Likewise, there are no plans to further loosen the rules around foreign ownership of Telecom.”

The Kiwi Share was created at the time of Telecom’s initial privatisation in 1990.

It was designed to ensure that rural customers got the same price landline voice service as urban customers (dial-up internet was added under the Telecommunications Act of 2001, when the Kiwi Share was rechristened the TSO).

It was also designed to ensure Telecom’s new American owners, Bell Atlantic (now part of Verizon) and Ameritech (now part of the recombined AT&T), did not import the Yankee practice of charging for local calls.

Subsidising the excesses of your teenage daughters
Telecommunications Users Association boss Ernie Newman says while the provision was a necessary political sop at the time, it’s time to move past it:

“While there is sentimental value attached to ‘free’ local calling by some, this comes at a price. Surely in 2009 legislating that one phone company (but not others) must by law offer ‘all you can eat’ plans, makes no more sense than a regulation defining the kinds of combo that McDonalds can market.

“And should a quiet man-of-few-words like me, who makes few calls and short ones, be required to subsidise the verbal excesses of your teenage daughters?”

A tax on competition
Vodafone and other Telecom competitors have long-loathed the TSO.

The measure is seen as a roadblock to more varied household plans, given that many consumers would now go for a mobile and landline broadband option now, given the choice to jettison a $42/month voice plan.

Vodafone, Telstra and others also rail against the TSO’s subsidy of Telecom’s service to “non-commercial customers in rural areas”.

Each year, the Commerce Commission works out a TSO charge of around $80 million.

Under the TSO’s bizarre frame work - which one Commerce Commission insider described to NBR as requiring his organisation to “carry out a thought experiment” of how much TSO-mandated service would cost Telecom if it had a separate division dedicated to the task - most of the $80 million is allocated to Telecom itself. But, being purely notional, thought experiment money, nothing changes hands.

But each year, Vodafone still gets landed with the lion’s share of the remaining cost – typically $16-20 million.

Gallingly, Vodafone chief executive Russell Stanners is required to write a cheque directly to Telecom for his company’s TSO contribution (albeit after their annual High Court stoush on the issue).

Tuanz Mr Newman says the non-commercial customer provision is a “tax on competition”. Since the Kiwi Share and TSO were originally drafted new cellular, satellite and wireless technologies have emerged that would allow Vodafone and others to service rural customers economically, if they were given the choice (as Vodafone has long lobbied for).

Telecom recently came onboard a Telecommunications Carriers Forum initiative that calls for the TSO to be technologically neutral, and it seems almost certain that Mr Joyce will drive some reform in this area, say in tandem with his $48 million rural broadband initiative, which is separate to the $1.5 billion urban fibre initiative, and yet to be detailed.

The minister's office confirms a TSO review is now under way and will be finalised by the end of this year.

For Vodafone, the review can't come soon enough.

"Under Vodafone’s reform proposal free local calls could stay but the existing TSO tax on competition would be removed," says external communications manager Paul Brislen.

"In its current form the TSO is outdated, badly distorts the market and means that so called 'commercially non-viable customers' are treated as second-class citizens, locked into slow dial up speeds. For this, the industry pays Telecom a compulsory subsidy of tens of millions of dollars a year.

"The fact is that the Vodafone mobile network already covers the vast majority of these so-called loss-making customers. If there are two or three commercial networks covering these customers today, how can they be described as commercially 'non viable'?

Mr Brislen says Telecom doesn’t invest the TSO levy money it receives in the rural sector.

"What we need is a new mechanism to ensure that rural New Zealand has access to much better Internet service. The current TSO arrangements block this. Satellite and wireless technologies can usually provide much better broadband access than dial up Internet in rural areas."

Should Telecom be foreign-owned?
This leaves the third major aspect of the TSO: provisions that a foreign investor should not own more than a 10% stake without the government’s OK, and that half of Telecom’s directors should be New Zealand citizens.

In the great scheme of things, Telecom is already in the hands of Johnny Foreigner. A majority of its shares on the NZX, and its US depository shares, are held offshore, which is where a majority of the dividends earned by those shares head every quarter.

The issue of course, is broader than ownership: who should control Telecom’s direction, and where its profits are funnelled?

NZX chief executive Mark Weldon favours a closed market and the present heavy government regulation. Lifting it, he fears, could see, say, Telstra, take a controlling interest in Telecom, and run our national carrier out of Sydney.

Joyce's plan: follow the Curran Doctrine
With this afternoon’s pledge from Mr Joyce that “there are no plans to further loosen the rules around foreign ownership of Telecom”, Ms Curran now has little ground for criticism; both politicians are firmly occupying the centre ground.

The larger picture is that Telecom is going through easily the most capital-intensive phase of its existence. It’s 3G network will need further upgrades, it’s only a fraction into its roadside cabinet project, fibre upgrades are needed everywhere, and it’s only dipped its toe into the ocean of expenditure complete transition of its voice network to IP.

It’s disingenuous to expect Telecom to be allowed to follow an aggressive expansion strategy offshore - as it has, buying two telcos in Australia, and investing in the trans-Pacific Southern Cross Cables Networks - and keep our market closed.