KEY POINTS:
It may be time to fix your mobile phone costs for the next five years.
"Ridiculous," you say.
"No one would offer a deal like that, and I'd be a mug to take it."
Moore's Law, which says the capacity of silicon chips doubles every 18 months and
the price halves, and Metcalfe's law, which gives a handy reckoning of the value of networks, would seem to indicate committing yourself to a technology spend five years out is folly.
But in the looking glass world of New Zealand telecommunications, the Five Year Plan has made a dramatic resurgence.
Showing economic acumen on par with Sir Robert Muldoon's outlawing of interest rate rises, economic development minister Trevor Mallard has declared Moore's and Metcalfe's laws don't apply here.
Telecom and Vodafone should be able to offer you a deal into 2012 because Mallard has guaranteed the extraordinary profitability of their mobile businesses until then.
He did that by rejecting a Commerce Commission recommendation to regulate mobile termination rates.
Instead the minister accepted offers from Telecom and Vodafone to reduce over five years the fees they charge other carriers to terminate calls on their networks.
Telecom's rate will drop from 20 cents a minute to 12, and Vodafone's will go from 20 cents to 14.
Compare that with Australia, where the regulator is proposing mobile termination drop to A9 cents from July 1.
Mallard got to make the decision after Telecommunications Minister David Cunliffe ruled himself out because of claims he has a conflict of interest.
Mallard said his decision to go with the "industry solution" followed a year-long process of consultation, review and analysis, so it could be seen as an informed decision under the Telecommunications Act 2001, and it would benefit end users.
Minus the spin, that means "Don't bother taking us to court, because all the boxes are checked."
Apart from the press release, there is no paper trail for the decision. Mallard just told Cabinet verbally what he had done.
One explanation put by industry watchers is bureaucratic infighting. By securing that result, Ministry of Economic Development officials ensure they still call the shots, through Ministers, rather than handing power over to the Commerce Commission.
The ministry's track record of failing to provide a competitive environment seems to have been overlooked.
The decision overturned three years of work by the Commission, including holding conferences, taking submissions and working up draft reports.
Its final 111-page report estimates the benefit to consumers as likely to be more than $60 million over five years, using extremely conservative scenarios. Some in the industry say it could be more than 10 times that, as the regulated environment would have been more likely to encourage new entrants to the market.
How regulation would have worked is initial pricing would be set by benchmarking against the price of terminating an incoming call on cellphone networks in comparable countries.
That would still leave a lot of fat for the telcos. Industry observers estimate the underlying cost of termination is probably closer to 5 cents than 20 cents, and they could go lower.
Vodafone argues that regulation would not guarantee price cuts would be passed through to consumers. Again, behaviour in a duopoly is different to behaviour in a more competitive market.
The Commission had been limbering up to take on the telcos. A white paper released the month before on the relationship between the Commerce Act and the Telecommunications Act indicated a change of heart from an earlier decision which allowed Telecom to choke cable company Saturn's expansion into the phone market by going down the street behind it, offering cheaper deals than other Telecom customers could get.
In other jurisdictions, this sort of geographic pricing may be considered predatory.
In its filings to the United States Securities Exchange Commission, Telecom says any removal of its ability to price geographically would be a threat to profits.
More than any direct impact on the price of mobile phone calling, the Mallard decision was alarming because of the signal it gave potential investors.
In a speech to the Trans Tasman Business Circle in Auckland, Telstra chief financial officer John Stanhope said the company was still waiting for regulatory change to open up the New Zealand mobile market.
He said the Government's decision on termination rates was 'unfortunate', particularly after Telstra's problems getting a suitable deal with Vodafone to allow it to roll out an mobile service in Tauranga.
"The same arguments apply about the need for pro-investment regulation that creates a level playing field for other players, not just the dominant network owners," Stanhope said.
Telstra was prepared to invest more in New Zealand if the regulatory environment was right. "At the moment we are not incented to do so."
That means we are unlikely to see the next generation network Telstra is rolling out across the Tasman, which supports data speeds up to a world's best 14.4 megabits per second. With this capacity it turns the mobile handset into a video phone, and TV receiver. By early 2009 we expect peak network speeds of around 40Mbps.
