The government and the big corporation

For the better part of a decade, we watched as one government after another chose to back the needs of Telecom over and above the needs of the broader industry or the voters of New Zealand.

Time and again we heard from Maurice Williamson, minister of communications for most of the 1990s, that if Telecom continued to step out of line he would be forced to act. In the end the voters acted and a new era of regulation began.

I often wondered why a political animal like Williamson would get so far off side with his voting constituents. Why he couldn’t see the constant growl of angry customers and a brow-beaten industry. Williamson isn’t stupid – he’s played the parliamentary game for a very long time and knows that ultimately the voters will conduct his performance review and if he wants to retain power, that’s all he should be concerned with.

He was also one of only a handful of MPs to have a smartphone (a BlackBerry if memory serves) and one of the few who would answer emails. I remember one outraged journalist at the time being told he couldn’t be added to the press release email list because the government wasn’t made of money. These days it’s getting the buggers to stop adding us to the lists that’s uppermost in mind.

Reg Hammond, over at InternetNZ, has an interesting take on the matter. He suggests that for the big decisions Telecom sidestepped the minister and went straight to the PM and that something similar may well have happened with the furore over Chorus’s wholesale price determination.

Chorus denies this, as does the current minister of communications, Amy Adams, but on the day the Commerce Commission announced its draft determination the first responder from the government was indeed the Prime Minister, who suggested that the Commission could make all the recommendations it liked and that it was up to the government to decide whether to go with those recommendations or not.

Sorry, but that’s not how the regulatory regime works – the Commission gets to decide the price point because that’s the only way to keep governments at arm’s length.

You need to keep governments out of such regulatory matters because governments are typically compromised – they are large-scale investors, they are large-scale customers and they are the policy makers. To include ‘regulator’ in that line-up is to court disaster as we saw during the 1990s in both New Zealand and Australia.

The regulatory regime set up in 2001 was extremely light handed and it failed to deliver results for quite some time. Spectacularly, it saw New Zealand receive the dubious honour of being the only country apart from Mexico to reject unbundling of the local loop. Mexico, let us not forget, is home to the richest man in the world – Carlos Slim – who made his money out of telecommunications. Currently Slim controls 70% of the mobile market in Mexico and 80% of the fixed line market and the Mexican government is hoping to introduce some kind of regulation that will reduce his control of what they have belated realised is the backbone of the nation’s infrastructure.

If we had one provider with that level of control you’d hope it would incur the wrath of the regulator because one player at that level is tantamount to disaster for the users and for the country as a whole. Australia saw Telstra rise to that level and beyond in the 1990s but because the Aussie government retained ownership long after it should have divested its shareholding, the regulator was unable to break Telstra’s stranglehold on the infrastructure. The reign of CEO Sol Trujillo is best remembered for his hiring of a team of former colleagues to produce a strategy for the company which was paid for by Telstra and which ensured he received his bonus for delivering said strategy on time. Oddly, it looked remarkably like the strategy of his predecessor and after four years of declining revenue (Wikipedia claims he underperformed the Aussie stock market by 20% costing the company A$25bn) he left with a grand payout as only telco bosses can receive.

Today the Australian market is a mess, with Telstra dominating both fixed and mobile sectors, no strong second-place competitor in sight and a government unable to achieve its potential even with a promised A$42bn spend on fibre.

If we look at the New Zealand market similar competition alarm bells should be ringing. We have two companies that don’t just dominate the market, they ARE the market. Telecom and Vodafone account for 90% market share of the mobile revenue and a similar number in the fixed line space. At any level of the market, whether it be local calling, toll calling, mobile data, backhaul, international connectivity or TXT messaging, in terms of revenue we see two names repeated over and again.

Yes, we have 2Degrees winning customers in the mobile space. Yes, we have CallPlus and Orcon and others fighting the good fight in the fixed line space. But when it comes to revenue we’re in single digits for market share for everyone other than Telecom and Vodafone.

This isn’t a situation the market can sustain or which the government can ignore. The question is, how will the government handle the responsibility of getting us out of this situation? Sidelining the regulator is not a good start.

Next week the Commerce Commission will hold its conference to discuss the issue of Chorus’s wholesale pricing. TUANZ will be attending and I’ll report back in next week’s newsletter.