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Current as of 19/09/14 06:40AM NZST

Editorial: Slow-learning Govt to boost Telecom profit

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Steven Joyce, Minister of Communications and Information Technology. Photo / Brett Phibbs
Steven Joyce, Minister of Communications and Information Technology. Photo / Brett Phibbs

The $12 million penalty imposed on Telecom last month by the High Court for anti-competitive wholesale pricing between 2001 and 2004 was mana for critics of the Government's proposed ultra-fast broadband law. This, the biggest fine in New Zealand history, spoke graphically of the consequences of the light-handed regulatory regime that preceded the 2006 Telecommunications Act. Surely it would be folly to contemplate anything like a return to those days. Yet that is just what the Government is risking with the Telecommunications (TSO, Broadband and Other Matters) Amendment Bill.

The legislation, which orchestrates the roll-out of an ultra-fast broadband fibre-to-the-home network for most of the country, prescribes a regulatory holiday until the end of 2019 for the companies that build the network. They will be off limits for any Commerce Commission review of pricing. The Government says prices for that period will be set in contracts between the winner of the broadband tender and the Crown. Telecom is the front-runner to have by far the biggest slice of the network, and says it will split its retail and network businesses.

The Communications Minister, Steven Joyce, defends the regulatory holiday as necessary for a stable environment, thus giving investors confidence in the scheme. Critics of the legislation are guilty of fighting the last war, he says. But what a conflict it was. For year after year, long-suffering consumers watched as Telecom used its position as the de facto regulator of the industry to thwart potential or existing competitors and milk profits. Lengthy and often inconclusive court battles became the norm.

If the world has moved on, as the minister suggests, it is equally appropriate to note that those who disregard the lessons of history are doomed to repeat them. That, certainly, is the view of an 11-strong group, which includes rivals of Telecom such as Vodafone and TelstraClear, that has written letters to MPs detailing its concerns with the amendment bill, especially the regulatory holiday. Clearly, such companies have a vested interest. They want maximum oversight from the commission and the lowest prices.

But it is notable that the group also includes the Telecommunications Users Association and Federated Farmers. All in all, the companies and consumer groups present a compelling case. In the first instance, as much as Mr Joyce may contend the break from regulation is essential, other countries have been able to attract broadband investors without protecting them from ongoing price scrutiny.

Equally, locking in prices may ensure certainty but the mechanism also risks falling prey to the swift pace of technological change. The price book could very quickly pass its use-by date. Most importantly, Telecom's dominance would create a similar scenario to that which applied before 2006. The checks and balances provided by an independent watchdog's oversight are eliminated. And as much as Mr Joyce may argue that fibre represents a new technological arena, the principles associated with competitive markets surely remain the same.

Private companies should be as free as possible to pursue commercial imperatives. The history of the telecommunications industry emphasises, however, that a regulator must be able to intervene if necessary. It may not have to make decisions for the industry but, in a fast-moving landscape, it should be an effective monitor. The Treasury suggested Telecom enjoyed monopoly profits of $500 million a year when previously freed from regulation. Before rushing forward with his broadband plan, Mr Joyce needs to be sure he is not heading into similar territory.

- NZ Herald

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