Editorial: Broadband blues need regulation

Opinion

The statistics relating to New Zealand and modern telecommunications technology have one major advantage. So woeful are they that they negate any suggestion that the status quo can be maintained. A country with such a huge stake in efficient communications cannot afford to remain ranked 41st of 42 high-income nations in telecommunications investment, or to be rated 22nd of the 30 OECD countries in broadband internet uptake. Competition-inspired infrastructure investment is desperately needed.

Not for the first time, a Communications Minister has recognised as much. David Cunliffe expects a regulatory review to be completed by the middle of the year, and promises action thereafter. That could take several forms, but it will be hard for him to look past opening the local loop to competition through a process known as unbundling. This would open Telecom's phone network to competitors. It is a process that should have been instigated at the time of privatisation. The failure to do so has presented the company with the defence of property right.

Unbundling is, however, a fact of life in all other OECD countries except Mexico. As far back as 2000, it was also identified by a Hugh Fletcher-led ministerial inquiry as the way forward for this country. In 2003, the Telecommunications Commissioner came to the same conclusion, only to later change his mind. The Government heeded that about-turn, contrary to the wishes of then Communications Minister Paul Swain, and allowed Telecom to embark on a target-based broadband customer scheme.

The company's announcement last week that it had fallen short of enticing the agreed number of wholesale customers - although it now denies there was such a target - confirmed the shortcomings of that approach. It also suggested that regulation had to come. In 2006, the Government can no longer allow itself to be cowed by Telecom, as happened two years ago when chief executive Theresa Gattung warned that unbundling would cause the company's share price to slip 30c, affect the sharemarket and, ipso facto, the economy.

Unbundling will be painful for Telecom. But probably not too distressing. It is likely the market has already accepted that the company will face some form of regulation, and has factored this into the share price. Furthermore, Telecom's massive presence and profile means it is well placed to take on competition in the broadband market. It will also have the plus of some form of compensation for its property right, perhaps involving a leavening of the restrictions imposed by the Kiwi Share.

The Government's major concern, in any event, must be the wider economy. While it is hard to quantify the exact pluses of broadband technology, it is clear that, at the very least, it offers efficiency and productivity benefits, and, at the most, opens new business avenues. The present situation, in which Telecom controls 92 per cent of broadband connections, provides no impetus to boost speeds and data limits, or to lower prices. The company, understandably, is perfectly happy with that situation. Only competition will spur high-speed action and innovation.

This is not something that will simply go away if the Government does nothing. The case for significant action, preferably by unbundling, has been a recurring theme of the past five years. If New Zealand remains slow on the uptake, even as new technologies make the demand for action ever more imperative, it will keep having to be revisited. This year, the Government must grasp the nettle.