The Prime Minister versus the Commerce Commission

The Prime Minister’s level of engagement over the Commerce Commission’s draft determination on wholesale prices raises many questions. I'm not a lawyer but here goes.

John Key has taken the lead on this – aside from her initial press release, minister Amy Adams has said little – and has repeated his willingness to change the law in order to protect Chorus’s shareholders.

A change in law is indeed what would be needed because the remit of the Commerce Commission and the Telco Commissioner has little to do with shareholders and, in the instance of a regulated determination, does not allow for political intervention.

The Commerce Commission primarily relies on three Acts to make up its remit with regard to the telco sector: the Commerce Act, the Telecommunications Act and the Crown Entities Act.

The Commerce Act (1986) makes it quite clear in Part One (8) paragraph 2:

the Commission must act independently in performing its statutory functions and duties, and exercising its statutory powers

The Crown Entities Act (2004) defines itself (Part One - Preliminary Provisions) as:

to reform the law relating to Crown entities to provide a consistent framework for the establishment, governance, and operation of Crown entities and to clarify accountability relationships between Crown entities, their board members, their responsible Ministers on behalf of the Crown, and the House of Representatives

Which again, speaks to this idea of independence from the Crown and the relationship between Commission and the government of the day.

Finally, the Telecommunications Act (2001) has plenty to say on the role of the Commissioner in overseeing the industry, not least of which is the Commissioner’s ability to deal with various service either as “designated services” or as “specified services”.  I won’t bore you with the detail but in essence a designated service is one in which the Commission sets the price.  Chorus’s wholesale price is one such designated service.

The Commission gets to make the final determination – it doesn’t then refer it as a recommendation to the Crown for approval. It weighs up all the factors, holds a conference, uses its best judgement, compares the local market with international markets and delivers a final decision.

There is no appeal to the minister in the Act.  It’s quite clear – the Commission must deliver the decision and the industry will abide by it.

Part of the Commission’s decision making is shaped by the government of the day, however. Section 19 (A) of the Telco Act says:

In the exercise of its powers underr Schedule 3,  the Commission must have regard to any economic policies of the Government that are transmitted, in writing, to the Commission by the Minister.

Although it does then go on to say this isn't “a direction for the purposes of Part 3 of the Crown Entities Act” which seems to imply a certain amount of fudging going on by the drafters of this piece of legislation. In essence, I read that as the Commission must consider the broader economic agenda of the government when it makes its rulings but isn't to be directed by the government on its particular decisions.

Which is of course precisely what the Prime Minister has said he’ll do.

In an exchange with Labour’s Clare Curran in the House yesterday, the Prime Minister made it clear that the government can and will intervene if it wants to.

From the Hansard draft transcript:

Clare Curran: Does he believe that it is a fundamental principle of our telecommunications regulatory regime that the regulator is independent to carry out its role without interference or undue political influence?
Rt Hon JOHN KEY: Of course. They are free to go about their work. The Government then is free to decide whether it wants to adopt that.

Unfortunately for the Prime Minister, the Telco Act as it stands doesn’t allow the government to “decide whether it wants to adopt that” at all. Far from it – the Act requires the Commissioner to make the decision.

This was all introduced to ensure that governments don’t simply overturn the decisions made by their hand-picked, trained, informed decision makers. They’ve handed over responsibility for the industry in large part to the Telecommunications Commissioner under the auspices of the Acts mentioned here.

Over the years the Commissioner has not always handed down rulings I’ve supported or even remotely agreed with, yet in recent years we’ve seen a Commission that is willing to painstakingly guide all the parties on a journey through its decision-making process. Tediously transparent, is how I’ve described the Commission’s work in the past and I’ve suggested to other government agencies they might like to adopt the same approach.

You can talk to any of the telcos and they’ll all tell you the same thing – they want certainty from the regulatory process. They want to see what the problem is, see how the Commission will address it, see where the outcome lies and plan accordingly. Independence and transparency are critical to providing that certainty. Now that independence is being challenged, not by the industry itself but by the Prime Minister.