Section 3: Telecommunications levy settings

Background

Telecommunications levies, collected from liable telecommunications companies, cover the costs of the telecommunications regulatory regime and fund non-commercial telecommunications infrastructure:

• The Telecommunications Regulatory Levy recovers the cost of the Commerce Commission carrying out its responsibilities under the Act.
• The Telecommunications Development Levy provides a steady funding stream for telecommunications capabilities or services that are not available commercially, or that are offered commercially but not at a price affordable to consumers. Section 90(1) of the Act outlines purposes for which the levy may be used.

The Telecommunications Development Levy enables telecommunications capabilities and services that would not be available commercially, for example Phase Two of the Rural Broadband Initiative and the Mobile Blackspot Fund. Funds from the Levy benefit not only consumers, but also telecommunications service providers, as it broadens the connectivity opportunities available to them for supplying services to telecommunications users.

Issue 1: Identifying liable persons

The levies are paid to the Crown by liable persons. A ‘liable person’ is defined as a person who “provides a telecommunications service in New Zealand by means of some component of a public telecommunications network that is operated by the person” (section 5 of the Act). Not every service provider must pay the Telecommunications Development Levy and the Telecommunications Regulatory Levy. A liable person must pay only if they:  

• traded in the preceding financial year, and
• are earning gross telecommunications revenues of $10 million or more in the preceding financial year.

Satellite service providers and levy liability

The current levy liability provisions capture some satellite providers, but may not capture all providers. In particular, satellite providers who facilitate the transmission of a New Zealand telecommunications service wholly outside of New Zealand, and have no land-based operations here, may be excluded from current liability provisions.

Related to this, we are consulting in this discussion document on other aspects of our regulatory regime which may be applicable to satellite services, in respect of identifying participants in the telecommunications market (section 4) and consumer access to dispute resolution (section 1).

Problem definition

It is important to ensure that all those who are benefiting from operating within our telecommunications market are contributing to the costs of regulating that market. It is also important that the costs of telecommunications services that would not be commercially available, but are in the public good to deliver, are covered. As noted above, the current levy liability provisions may not capture all satellite broadband providers who may provide services to New Zealanders.

In addition, the levy liability regime should be flexible enough to respond to market changes, such as the evolution of new technologies for delivering telecommunications services.

Questions for stakeholders

Options

Option 1: Status quo – do not alter existing levy liability provisions

Under this option, no changes would be made to modify levy liability. Service providers not covered by the liable persons definition will remain out of scope.

Option 2: Legislative change – amend liability provisions to capture all satellite providers and/or future-proof provisions (preferred option)

This option would require an amendment to the Act to broaden the levy liability settings to cover all satellite service providers who provide services to New Zealanders (who meet the revenue threshold from their New Zealand earnings). Additionally, the amendment could create a flexible mechanism to determine levy liability for future new cases, based on certain criteria. For example, a new regulation-making power.

Benefits

• Would promote a level playing field, as the levies would apply to all service providers who meet the revenue threshold and are benefiting from providing services to New Zealanders and operating in the regulated market.

Considerations

• Providers brought into scope may pass any levy costs onto consumers, increasing the costs of these products.
• Small risk of disincentivising operators from entering or continuing to provide their services in New Zealand, noting that they would only contribute to the levy if they meet the $10 million minimum revenue requirement.

Questions for stakeholders

Issue 2: Regulatory process to set the total Telecommunications Development Levy amount

The total amount collected for the Telecommunications Development Levy is set in Schedule 3B of the Act. It was initially set at $50 million per annum for nine years. It was then decreased to $10 million per annum. This change was made because the deployment of network infrastructure through the Rural Broadband Initiative was expected to be complete. The Telecommunications Development Levy is further adjusted by CPI accounting for inflation each year.

While an increase to the Telecommunications Development Levy amount requires an amendment to the Act, a decrease is more straightforward. It can be done by an Order in Council following a recommendation from the Minister (section 92 of the Act).

Problem definition

Currently, if there is a need to increase the amount collected through the Telecommunications Development Levy, this would require an amendment to the Act. This can be a lengthy process potentially compounded by any difficulty in obtaining legislative priority for a proposed bill. In practice, it is rare to take an amendment bill through the house for a stand-alone issue like a levy increase.

We consider the current framework does not allow enough flexibility to address changes in telecommunications markets. This could result in diminished connectivity outcomes for consumers, as the Government may be unable to fund services that would otherwise not be offered commercially, or are offered, but not at an affordable price. For instance, we are aware that some rural communities still have challenges accessing high-quality connectivity and that this is an issue that may need to be addressed with further investment.

Questions for stakeholders

Options

Option 1: Status quo – the Telecommunications Development Levy amount remains set under Schedule 3B of the Act

This option would see no change made to the way the amount of the Telecommunications Development Levy is set. An amendment to the Act would be needed to increase the total amount of the levy.

Option 2: Legislative change to provide for the Telecommunications Development Levy amount to be set in regulations (preferred option)

An amendment to the Act could be progressed to create a new regulation making power, providing for the Minister to set the Telecommunications Development Levy amount via secondary legislation.

If this option were adopted, it would reduce the administrative process and timeframes to increase the Telecommunications Development Levy. We propose that any increase would be based on a justified government need to respond to changing market conditions, consistent with the purposes of the Telecommunications Development Levy. In addition, we propose there would be transparency and consultation requirements in place to ensure those liable for the levy are provided the opportunity to be consulted on any proposed increase.

Benefits

• Provides the required flexibility for the Government to adapt the Telecommunications Development Levy amount to meet important connectivity needs not available on a commercial basis.
• Levy amount could still be decreased if the need was met and the increased amount was no longer required.

Considerations

• Appropriate controls around the use of such a regulation making power would need to be drafted into the design of the empowering provision. Controls could include consultation requirements and criteria to guide any increase.

A related matter that we are not currently considering

We have heard anecdotally that the current process set out in the Act for calculating the Telecommunications Development Levy is complex and can be administratively burdensome for both liable persons (to disclose a large amount of information and fulfil audit requirements) and the Commission. We are not seeking feedback on this issue at this time. We acknowledge that some stakeholders think this process could be improved, we consider this is a lower priority when compared to the issues outlined above.

Questions for stakeholders

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