The Prime Minister versus the Commerce Commission

The Prime Minister’s level of engagement over the Commerce
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
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

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

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

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

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