Communications Minister Steven Joyce has finalised his rural telecommunications plan.As expected, it's bad news for Telecom.The company is to lose its long-time annual subsidy - the TSO Levy (formerly known as the Kiwishare levy) - for servicing so-called
Communications Minister Steven Joyce has finalised his rural telecommunications plan.
As expected, it’s bad news for Telecom.
The company is to lose its long-time annual subsidy - the TSO Levy (formerly known as the Kiwishare levy) - for servicing so-called “commercially non-viable rural customers”.
Telecom immediately released a statement to the NZX saying Mr Joyce's decision could slice up to $56 million a year off ebitda for each of its 2011 (currently forecast at $1.77 billion), 2012 and 2013 financial years).
In short, the minister has decided that Telecom should be able to make a buck from servicing the rural customers in question, and its automatic funding is being axed.
If Telecom can prove it can’t in fact made a profit from rural customers, it can apply for compensation under the Telecommunications Act (2001).
“Free” local calling safe
Although Vodafone, TelstraClear, Tuanz and others have been vehement opponents of the TSO Levy - maintaining that new technologies mean there are many commercial ways to service remote customers - none are fans of another component of the TSO: “free” local calling.
They maintain $42/month home lines are less relevant at a time when many make most - or all - of their calls on a mobile.
But today the minister reiterated his pledge that free local calling would remain part of the TSO.
The minister also said the TSO restrictions on foreign ownership and control of Telecom would remain in place (that is, any party taking a 10% or greater stake requires government permission, and at least half of the company’s directors must be New Zealand citizens).
Mr Joyce also said he did not expect today’s TSO changes to lead to any chance in monthly line rentals.
Out with the old
For years, Telecom has been allocated $60 million to $70 million a year under the TSO Levy to service around 60,000 or so rural broadband customers deemed “commercially non-viable”.
Under the TSO Levy - calculated each year by the Commerce Commission under the Telecommunications Act (2001) - rivals have had to chip in to help Telecom meet the cost of providing a homeline and dial-up internet connection for rural customers.
Vodafone has been allocated easily the biggest TSO share, paying Telecom between $16 million and $20 million a year (much of the remainder of the levy is notional, as Telecom pays it to itself under a bizarre ComCom formula. While full figures are confidential, a spokesperson for Telecom said the company typically received around $23 million from the TSO).
In with the new
Today, Mr Joyce announced the TSO Levy will be phased out in favour of a new Telecommunications Development Levy.
The 2009/2010 financial year will be the last under the new regime.
The new Development Levy will see $50 million a year raised from all telecommunications companies. All will then be able to compete for the right to tap the fund to develop rural broadband services.
The levy is set at $50 million for six years.
Approximately $42 million a year will be allocated to the government’s rural broadband initiative, which was also finalised today - to a cap of $242 million.
The government allocated a kick-start $48 million for rural broadband in last year’s budget.
Faster rural broadband actually pretty slow
Under the previously flagged initiative, the government aims to bring faster broadband to the 25% of the population not covered by its $1.5 billion ultrafast broadband (UFB) project, which aims to bring 100Mbit/s fibre to urban premises.
Compared to head-spinning urban speeds, the rural broadband performance targets are modest, however.
Mr Joyce promises 5Mbit/s connections for 97% of rural households.
The remaining 3% are promised a dismal 1Mbit/s.
The minister also released the timetable for companies that want to tender to provide rural broadband.
Under this initiative - which will be completely separate from the urban UFB intiative - New Zealand will be broken into 20 regions.
Telecom shares (NZX: TEL) were down 2 cents to $2.19 in midday trading.
The tender time-table (see more details on the MED website).
