NZ laws would not permit US-style Microsoft carve-up

By RICHARD BRADDELL

A United States judge has said enough is enough. Having concluded that software giant Microsoft is dominant and has abused that dominance, he has ordered that the company be broken into two.

If the decision survives the appeal process, Microsoft will suffer about the most draconian sanction a company can face.

But in pure competition terms, all the judge is doing is invoking a structural solution to a market problem with the aim of putting temptation out of Microsoft's reach.

Could the same happen here? The short answer is no, because New Zealand's competition law is not designed that way. The Commerce Act can prevent mergers and takeovers, or require divestitures as a condition of their authorisation, but no provision enables already dominant companies to be split up.

Instead, the Commerce Act offers what the competition lawyers describe as behavioural solutions which can result in injunctions or fines.

One need look no further than the electricity industry to find an example where companies have been broken up in pursuit of a structural solution to a market problem. The difference is that it was former Energy Minister Max Bradford who acted, not the courts.

The clamour for structural solutions is already being heard in the submissions to the Government's inquiry into telecommunications, primarily in the call for unbundling of Telecom's local loop.

The argument is that by forcing Telecom to sell access to its actual copper infrastructure, competitors will be able to offer a bunch of new high-speed internet services to consumers more quickly and cheaply than if Telecom is left to its own devices.

Britain, other European Union countries, the United States and Australia have decided that unbundling is a key element in a speedy transition to the information economy. In most cases, the decision to move in that direction has been made by regulators.

But New Zealand's stance is laced with ironies. If it were to go ahead with unbundling, it would not be the first time a structural solution has been attempted in telecommunications. Ahead of deregulation, Telecom undertook to break the business into wholesale and retail units so the retail side would have to buy services on the same terms as competitors.

In the end, the resulting corporate structure was more vertically integrated than envisaged and that limited separation did not last long; the Government approved its dissolution in 1992.

Furthermore, while Mr Bradford moved with gusto to break up the electricity companies, the previous Government was avowedly hands-off in telecommunications, apparently out of fear that any constraint on Telecom's market power would upset international investors.

The biggest irony of all is that if any intervention is needed in our hands-off environment, politicians will be forced into the very heart of the regulatory process because institutional structures are so weak.