The Copper Tax

This month’s After Fives saw the Telecommunications Commissioner tell us about the state of the industry, revenue trends, investment and what the future could hold for the industry.

Unfortunately, I’m less sure the future of the Telecommunications Commissioner role itself.

The government’s stunning move to make pricing decisions in the Beehive means the role of the Commissioner is, to all intents and purposes, surplus to requirements, at least as far as the government is concerned. Suddenly it’s the 1990s all over again.

For close to a decade the government of the day dithered while Telecom (as it was – Chorus now) sent most of its earnings offshore to its US shareholders, failed to invest in basic infrastructure, blocked competitors coming into the market (remember Clear taking them to the High Court?) and generally offered a very poor service to its customers.

The change in government saw regulation introduced for the first time, albeit at the light end of the scale. Eventually we empowered the Commission with teeth to do the job at hand and the industry has flourished ever since.

More importantly, the consumer has also benefited. We’ve seen prices tumble as speeds and data caps increase. Increased investment means we have three cellphone network operators each with extensive networks and more to come. We have a fibre network deployment underway to satisfy pent up customer demand. We are addressing rural New Zealand’s broadband needs, and while I’m clearly in the “more, better, faster, sooner” camp, we are heading in the right direction.

Unfortunately the government and in particular minister of communications Amy Adams has derailed all the good work of the past decade with one announcement.

Chorus’s shareholders’ needs  are now the key driving force behind the government’s approach to telecommunications, not consumers.

The side-lining of the Telecommunications Commissioner means we have no way of ensuring users’ needs are first and foremost in our regulatory landscape. In effect, the minister will be setting the price of service directly, with little or no regard for either international benchmarking or the contract her government signed with Chorus.

The fibre rollout will only ever reach 75% of the population and most of those users won’t be signed up until after 2020. That means the quarter of the population who won’t get fibre will forever more be subsidising fibre users. It also means that most of us will be paying the Chorus tax for at least the rest of the decade.

This, then, is the heart of the matter – we have a contract with Chorus that has now been renegotiated without input from the rest of the industry, without reference to international best practice, without even a tender process to see what’s available in the market today.

The minister is now entirely responsible for the regulatory regime in which the telcos operate without the safety net that the Telecommunications Commissioner brings to that regime. Not only is the government the investor in the network, it has now taken over as regulator and that’s an appalling position for the industry to be in.

What next? Will she decide that Vodafone’s 4G network is a threat to uptake rates on the UFB and regulate Vodafone? Will she decide that the price of UFB is too low to ensure returns to the shareholders and put up the price? Will she allow Chorus to pocket price in areas where the other LFCs are building our network? Will she encourage Chorus to buy up those LFCs on the basis that having one network operator is better than four?

Governments that invest in infrastructure should stay out of the business of regulating the same investment. They can’t wear two hats, they can’t be both investor and regulator. They can set policy directions and try to encourage investment all they like but if they’ll also regulate to protect their own investment the whole thing will come apart at the seams.

We now face a monumental struggle to ensure the Chorus tax is repealed, that the government reinstate the Telecommunications Commissioner as the regulator and that the Beehive stops introducing more uncertainty into this sector. It’s too important to leave it up to the politicians.