Hunt's on for hard-nosed regulator

By RICHARD BRADDELL

The Government has begun its global quest for a telecommunications commissioner.

The commissioner's job comes into being under the Telecommunications Bill which should be law by September.

It is not a job for the faint-hearted.

Charged with the bringing order to a war-torn industry, he or she will have to balance some strongly polarised views on the extent to which the industry should be regulated.

Peace will not break out. And nor should it, since a degree of friction is good for everyone in a competitive business. But in a larger-than-life industry, the commissioner will have to be a robust personality and a confident decision-maker.

Rumour has it that the Government is willing to pay between $200,000 and $300,000 for the right person - perhaps more for an appointee from overseas.

To date, the one person talked of as a possible candidate is Mike Lear, a senior Ministry of Economic Development official. But that may be a controversial choice as he has been closely associated with the formulation of government policy, both in the present and previous governments.

The Government advertising is calling for "outstanding" candidates with senior management experience, proven intellectual skills and ability to deal with economic management as well as an understanding of telecommunications issues.

Whether all those attributes are essential might be questioned.

Businessman Hugh Fletcher had no telecommunications background prior to the inquiry, but he managed to grasp the issues.

To Clear Communications, business experience should be paramount. "We think that's absolutely key," said Clear's industry and regulatory affairs manager, Grant Forsyth.

The bill, which will soon work its way through select committee hearings, is a reasonably faithful reproduction of the Government's pre-Christmas policy statement, even if it deviates in some measure from the recommendations of the Fletcher-led inquiry.

Key among those is the decision to locate the commissioner within the Commerce Commission. While the new entrants to the industry generally put a brave face on that decision, they fear the commissioner might get caught up in the bureaucracy of the Commerce Commission.

Communications Minister Paul Swain demurs. While he has been instrumental in ushering in the new regime, he has demonstrated less than obvious enthusiasm to accommodate every little wish of the new entrants.

In a recent interview with the Business Herald, he said the inclusion of the commissioner inside the Commerce Commission was consistent with the Government's electricity reform and provided the opportunity for peer review of complex issues. It might also counteract the risk of regulatory creep.

He also hinted at a preference for a local appointee. Surprisingly, the bill has been reasonably well received in National ranks, with Opposition telecommunications spokesman Alec Neill, describing it as a light-handed business friendly framework.

That is all the more surprising considering the stance of the previous government's communications minister, Maurice Williamson, whose nine-year tenure was characterised by a deep reluctance to intervene.

Mr Neill makes no bones that he has a different point of view. "I was appointed Opposition spokesperson on communications. I took up that role with a clear head and an open mind, and without any pre-conceived outcome requirements," Hansard records Mr Neill as saying on the bill's introduction.

But like any good Opposition politician, Mr Neill was not going to let the bill be introduced free of criticism. He questioned the rising cost of the telecommunications commissioner, from $1.5 million estimated by the Fletcher inquiry to $2.6 million now.

"It is a new tax on business," he proclaimed. He also highlighted other concerns, for example limited rights of appeal from the commissioner's determinations.

But, if anything, he suggested that the bill might go even further, saying that now might be the time to overhaul the Kiwi share which imposes an obligation on Telecom to provide free local calls and to restrict residential line rentals to no more than the rise in the consumer price index. Mr Neill hopes that might improve rural access to high-speed internet services.

In some measure, he may get his wish. While Mr Swain says matters such as the Kiwi share and local loop unbundling can be revisited once the new regulatory structure is in place, he is unwilling to canvass them during the legislative process.

But provisions in the bill clearly open the way to make the Kiwi share obligation contestable or transferable to other carriers. Part 3 sets out rules under which telecommunications service obligations can be established via contracts and understandings with the Crown under which telecommunications service providers can be reimbursed for providing services to groups or geographical segments.

The arrangements are a clear echo of the revised Kiwi share contract between the Government and Telecom under which Telecom will be reimbursed for Kiwi share losses, by other carriers, proportionate to their market share.

While Telecom is claiming Kiwi share losses of about $180 million, other carriers are concerned at the lack of clarity in the methodology Telecom uses to calculate the losses.

While Mr Swain offers no view on the veracity of Telecom's figure - it could be a $200 million loss, or worth $200 million to Telecom, he suggests - he is adamant that the Kiwi share remains an obligation that was factored into Telecom's price when it was privatised.

Telecom's government and industry relations manager, Bruce Parkes, is in no doubt that the legislation envisages multiple Kiwi share style obligations, perhaps arising in circumstances where Telecom sells part of its network.

But Mr Parkes has no truck with the suggestion from National's Alec Neill that local loop unbundling be put back on the agenda, at least for discussion if not for adoption. Not even the Fletcher inquiry, whose recommendations were toned down at the Ministry of Economic Development before adoption by the Government, went as far as to recommend unbundling, even although it has been mandated in much of Europe, the United States and Australia.

Regulators in other countries have been attracted to unbundling because it can be a quick way to get competition into markets, because new entrants can essentially take over copper lines owned by the incumbent at a cost-based price, attach their own equipment directly and provide their own services.

But Mr Parkes sees the Government's stance as sending a clear message that it wants infrastructure-based or facilities-based competition, not competition via reselling arrangements with mandated pricing principles.

While reselling and unbundling may give some increase in competition and functionality at the retail level, he says the profit margins are likely to be narrow for the reseller.

"If you get people building their own competing infrastructure you are much more likely to get real price competition and differentiation in service quality and functionality."

Nevertheless, the new commissioner, when he or she is installed, can recommend to the Government that unbundling be introduced. Mr Swain acknowledges that fact, but he declares himself lukewarm, at best, on the idea after a recent trip to Europe. Over there, few lines had been unbundled, and the process was becoming shrouded in litigation and argument over how much new entrants should pay for the lines.

Whether that is due to incumbents dragging their feet, he does not say. But that is sure to be raised at the select committee.

So, too, are concerns about the appeal process. It has been designed so that the commissioner's rulings stand, at least until overturned at appeal.

But while Telecom has always been accused as being the party that has held up progress by delaying disputes resolution, Mr Parkes says the appeal process will create even more delays because the new entrants will have no incentive to get appeals dealt with swiftly.

If this is simply a transfer of the tactical advantage by blocking Telecom from using legal processes to delay resolution, he does not think so. "We have never lost a case when it has gone to a substantive hearing."