When I started at TUANZ nearly three years ago we immediately jumped in to the debate around the government’s new Telecommunications Bill and its ten-year regulatory holiday for whoever built the fibre network.

We pushed hard for the Commerce Commission to have oversight of the industry. TUANZ and various other organisations had worked too hard to get a regulatory regime in the first place to let it get thrown away as a bargaining chip.

The reason we fought so hard is because the previous decade had seen government after government gamed by the incumbent to the point where investment was at an all-time low, competition was non-existent and customers were paying some of the highest prices for the poorest services in the world.

Direct government ownership of the industry had been replaced by complete lack of involvement, to the detriment of both competitors and customers alike.

Finally, in 2001, we saw an inquiry, a review and the introduction of an extremely light-handed regulatory regime that didn’t really work, but was a start. In 2006 the regime was beefed up and finally given the teeth it needed to ensure competition was robust but fair and that consumers were the beneficiaries of the telco sector rather than the victims.

Today, all that has been swept aside. The government has introduced three options for the regulation of the fixed-line copper network for the rest of the decade and all of them involve the Beehive setting the price for wholesale service.

In many ways this harkens back to the 1970s when MPs would debate the price of butter in the House, only this time there will be no debate. The price will be set by the executive and that’s that.

Chorus will be very happy about this. It ensures that the pesky Commerce Commission with its pesky “cost based” pricing model doesn’t get a look in. Instead of reducing the cost of copper broadband to ISPs, the price will remain roughly the same or drop by a couple of dollars.

Telecom will be happy because the government allows Telecom’s homeline service to continue as is, unmolested by change. That means other ISPs, that don’t own the PSTN (ie everyone else) will end up paying more for the same service. Telecom won’t have to unbundle because unbundling is deemed an inefficient use of resources but still gets to sit pretty while its competitors costs increase.

The smaller ISPs, CallPlus, Orcon and the like, who have unbundled will end up seeing their investment derailed completely. The government’s three solutions are a nightmare for these guys as the government will potentially put up the price of an unbundled line.

Customers see no change to their pricing whatsoever. No ISP will pass on a saving of a couple of dollars and that’s the best you could hope for out of this.

The government is the major investor in the UFB and has now usurped the role of regulator as well. Instead of having an arm’s length, independent Commerce Commission, we will have prices set by the minister or, at best a Commission that can only act in a manner that can only be described highly prescriptive.

Instead of an international benchmark, the Commission would only be allowed to set copper pricing by directly comparing with the UFB pricing model, putting aside any consideration of the different service speeds, capabilities, network age and all the rest. The price would be limited to a range set around the cost of the entry level fibre price and that’s that.

I wonder what Vector’s view of this sudden renegotiation of the terms will be. I wonder what international investors think of a government that is willing to usurp the regulator in such a stellar fashion. I wonder what our trading partners think of a regime that allows politicians to replace regulators at a time when the government is also the investor.

I wonder what customers think the outcome will be if we allow the needs of one company to override the needs of both the industry and the users.

4 replies
  1. Paul Brislen
    Paul Brislen says:

    Hi Peter,

    My view of the role of the regulator (in telco – I don’t follow the power market) is quite different – it’s the regulator’s job to sort out the wholesale prices and the government is required to stick to its role as investor. Having the two roles confused is not only not world’s best practice, it’s really quite disasterous.

    The regulator was working through a process, the politicians intervened and now we face a result that will penalise the customers and reward the investors in one company. Sounds to me like a giant leap backwards.



  2. Peter Carr
    Peter Carr says:

    Thats quite a rant Paul, i hope you feel better. I haven’t read the 3 options, but this sounds remarkably similar to a proposal for the electricity sector… the government sets the price, the regulator has a simpler job to control the market and super profits won’t be possible (yeah right), and the government is the primary investor… the only difference is that Labour and the Greens propose the changes to the electricity sector.

  3. John Allen
    John Allen says:

    The ‘principles’ that will guide the review are a ‘focus on end-users’. Pure spin. What the review will achieve is a focus on ensuring the viability of Chorus in the face of changing technologies.

  4. John Allen
    John Allen says:

    Absolutely Paul. The three options make it clear that the government are determined to interfere with the Comcom review and will do whatever it takes to achieve the outcome they have pre-determined. This will be at the cost of consumers.


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