Information Technology Reference
In-Depth Information
The 'Universal Service' Obligation
The 'Free Local Calling' Obligation
The 'universal service' obligation had its origins
in 1856, when the fledgling New Zealand colonial
government, as one of its first independent ac-
tions, regulated postal tariffs to a single, uniform
national rate. When the government assumed
regulatory responsibility for telegraph services in
1864, universal 'postalised' telegraph tariffs were
imposed. In addition to rationalising a plethora
of individual, provincially-based tariffs, univer-
sal pricing satisfied a social policy objective to
“establish a system commensurate with the rapid
increase of the population nationwide … and to
encourage and facilitate settlement of the interior”
(Wilson, 1994:22). From the dissolution of pro-
vincial government in 1876, when all provincial
telegraph assets passed to central government
ownership, universal 'postalised' telegraph tariffs
were imposed by the government as monopoly
provider rather than via legislated price controls.
In 1880, the government assumed, via the
Electric Telegraph Act, the monopoly for own-
ership and provision of all telephony services in
New Zealand. Consistent with postal and tele-
graph pricing, universal telephony tariffs were
imposed from the very outset. Courtesy of the
'Kiwi Share', universal tariffs remain today despite
New Zealand's very different social, economic
and demographic characteristics (for example, the
current population is around 80% urban (OECD,
2007), indicating that the historic policy objective
of “settling the interior” is no longer a primary
justification for maintaining universal telephony
tariffs). Any change to the traditional pricing pat-
tern has been considered politically 'too difficult'
to bring about
4
, although a recent review by the
Telecommunications Carriers' Forum (TCF) has
recommended that the government revisit the
possibility of funding the obligation from general
taxation rather than as a charge on the industry,
and making the obligation contestable, rather than
binding Telecom alone (TCF, 2008).
The 'free local calling' obligation arose in 1880,
when the incumbent Superintendent of Telegraphs,
upon assuming responsibilities for telephone
services, eschewed charging for calls between
subscribers connected to the same exchange as he
deemed the practice “too complex and onerous for
exchange staff who would have to log the calls”
(Wilson, 1994:66). When the issue was addressed
four years later by the Postmaster General, any
change in the pricing policy was deemed to be too
“politically unpopular” to undertake (
ibid
). When
technological change led to exchanges covering
larger areas, the 'free local calling' zones expanded
commensurately.
Following World War Two, 'free local calling'
zones became a matter for political determination,
independent of exchange or technological restric-
tions. Burgeoning use of long-distance telephony
offered opportunities to politicians seeking po-
litical support to trade off politically-determined
long-distance charges against 'free' local calling
benefits, particularly in marginal electorates (Wil-
son, 1994:151-3). Consequently, New Zealand has
historically exhibited some of the OECD's largest
local calling zones (NZIER, 2005).
Once again, the embeddedness of 'free local
calling' in New Zealand's institutional framework
resulted in its inclusion in the 'Kiwi Share' obli-
gations, as it was deemed too politically difficult
to do otherwise. In the 2008 TCF review of the
'Kiwi Share' obligations, the economic and social
implications of free local calling were excluded
from the terms of reference for the review, as the
government had directed that such services must
continue to be provided (TCF, 2008:25).
The 'Price Cap' Obligation
The 'price cap' obligation draws on New Zealand's
long history of political price-setting. From the
inception of telephony services in 1880 until
the passing of the Telecommunications Act in
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