Opinion: Back to the nineties for telco competition?

3:41 PM Friday May 4, 2012

Could the government be poised to return telecommunications to the ugly, unregulated, anti-competitive state of the nineteen nineties?

The time when minister Maurice Williamson stubbornly ignored the successful regulatory practices of every other developed country, shooting Telecom's share price to obscene heights based on unassailable market dominance at the direct cost of hapless consumers?

Six months ago this might have seemed implausible. Some hard-learned lessons, surely, become ingrained.

But events unfolding over recent weeks have industry commentators wondering.

Central to the debate is the looming expiry of the term of the Telecommunications Commissioner, Dr Ross Patterson. Since starting in the role in 2007 Patterson has been widely acclaimed for notching up numerous victories for consumers.

Within weeks of appointment he made an impact. Consumers can thank him for removing Telecom's monopoly on the local loop and regulating its street cabinets, regulating mobile phone termination rates, and numerous lower-profile but equally important measures to remove market bottlenecks in this complex sector.

Tellingly it was early in Patterson's watch that 2degrees Mobile finally gained the courage to launch itself against the Vodafone/Telecom duopoly after a decade of indecision. That alone changed the character of the mobile market and dropped prices significantly across the board.

Yet despite the friction inherent in such an influential role, Patterson appears to have retained the confidence and grudging respect of telecommunications companies. They mostly appreciate his open and transparent style, approachability and even-handedness. So when Patterson announced that he planned to apply for a further term, there was widespread support and an expectation that he would be the clear front runner.

But the rumour mill suggests that the government has decided not to re-appoint him. Contrary to the usual practice when an incumbent has their hat back in the ring, advertisements for the role - headed "Search for a Telecommunications Commissioner" - have been widespread and repetitive. Many other signals have fuelled speculation that the government is gunning for him. And incidentally the job description issued for the role is clearly five years out of date, suggesting some unseemly haste and casting doubt on the legitimacy of the process.

So why would the government walk away from a highly experienced, courageous, popular regulator with a global reputation, at such a crucial time when ultra-fast broadband is set to disrupt this complex market?

The answer might lie not in telecommunications, but down the road in the television sector.

Globally, broadcasting and telecommunications are racing towards a shotgun marriage. Television entertainment is starting to migrate from its inflexible current transmission platform, to the Internet which offers the allure of interactivity and timing to suit the individual viewer. The Ultra Fast Broadband network currently under construction will offer a major new opportunity for television services such as TVNZ and the Murdoch empire's Sky TV.

Tellingly, it will also shift the bottleneck which used to reside on the distribution networks, to the content. Abundance of bandwidth means the market will be dominated by the company that can provide the best entertainment packages. Sky TV especially, with its massive bulk buying operations through parent Murdoch's global empire, stands to be a clear winner. It could so easily become in tomorrow's telecommunications market what Telecom was in the 1990s - with no regulation to protect consumers against re-monopolisation.

Which brings me back to Patterson. When he took over the role the Labour government was in the process of producing a review of regulation of digital broadcasting, designed to explore whether New Zealand should follow the lead of numerous countries including Australia and the UK and regulate broadcasting and telecommunications jointly.

Regrettably an early action of the incoming government in 2008 was to can the review.
But more recently, mindful that New Zealand was becoming further out of alignment with global best practice, Patterson used his investigatory powers to initiate a similar study under the Telecommunications Act. This clearly raised the ire of some in the television sector, leading to powerful lobbying of the government to rein its man in.

That ire, it seems, is driven not by any deep knowledge of the subject matter, but by agitation from large commercial vested interests, supported by National's ideological aversion to regulation.

Which comes right back to Maurice Williamson in the nineteen nineties.

If Patterson goes, the rumour is that the dedicated role of the Telecommunications Commissioner will morph into the mainstream of the Commerce Commission, where the specialist expertise and speedy action needed to protect consumers in this fast paced sector simply won't exist. After that, expect the government to quietly reduce the powers of the Commission in telecommunications so that no Commissioner can look at the broadcasting sector for years ahead.

I hope I am wrong. I fear I'm right. If so, expect to see the re-emergence of market dominance across both television and telecommunications.

And by the way - start saving! Contrary to what some large corporations might tell you, untrammelled market dominance in essential services is never good for consumers. Phone prices that have come down over the years, must go up.

Ernie Newman was CEO of TUANZ, the Telecommunications Users Association, from 1999 to 2010. Disclosure - since he become a consultant, his clients have included the Commerce Commission as well as some telecommunications and broadcasting interests.