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Consultation

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Consultation is critically important whenever governments want to intervene in a business or market. Everyone involved needs to fully understand what’s happening, why and what the outcomes will be. 

Take the Commerce Commission process for example. I describe it as “tediously transparent” because the Commission is scrupulously fair about its interactions with all parties. 

For any determination process there will be a formulaic approach to consultation. The Commission will release a discussion document, will ask for submissions, which are made public by default, put out a draft determination and hold a conference, accept cross submissions, ask follow up questions and then publish a final determination..

Submitters are encouraged to mark commercially sensitive passages as just that and they are redacted from the public documents, but generally speaking we all know exactly where we stand at all times.

The Government’s telco review failed to deliver any such transparency.

To begin with, the discussion document listed three options, all of which resulted in the same outcome – an increase in price for copper broadband. Secondly, no attempt was made to outline what the actual problem was or why regulation was needed to resolve it. Thirdly, the status quo was rejected out of hand again, with no reason given.

We’re told the government received economic advice on the matter but that wasn’t made public at any stage. We’re told several government departments submitted on the discussion document, but we we still aren’t allowed to see the advice. Submissions were only made available after TUANZ and others put in Official Information Requests and even now we are waiting for a number of documents which have been delayed by MBIE.

Worst of all, the outcome of the discussion document was pre-determined and that is, I believe, why CallPlus has made the decision to seek a judicial review of the process. This was little more than consultation theatre designed to keep us all busy without producing any unwelcome changes to the government’s desired outcome. 

We still don’t know why Chorus didn’t see this coming. CEO Mark Ratcliffe worked exclusively on the UFB contract for several months before Chorus was spun off from Telecom. Steven Joyce wrote the Act and gave Chorus clear notice that the move to cost-based pricing would involve a dramatic change to its revenue stream by giving the a three-year delay in the introduction of the new regime. You don’t include a three-year moratorium on something you expect will have a minor impact. And quite what the market analysts were doing when analyzing the stock is anyone’s guess. 

We still don’t know what the impact on Chorus’s revenue will actually be. The Coalition has asked Professor Jerry Bowman from the University of Auckland to work out the impact and he says there won’t be one, but Chorus claims the company will all but go under if we all pay it $10 a month less. TUANZ welcomes the decision to independently review Chorus’s books to see what is really going on and looks forward to that report being made public. 

This is exactly what the government should have done before launching the consultation round because we’ve now wasted six months talking about a problem that may not actually exist.

 

The Copper Tax

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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.