Peter Nowak: Telecom casts long shadow

The latest OECD report is damning of New Zealand's telecommunications industry as usual, but it has made Telecom quite happy. That's enough to make some of us industry watchers nervous.

First, the bad news. The report says cellphone prices are very high by international standards, but there's no reason that network charges should be higher here.

Indeed, in the medium- and heavy-user category, New Zealand is the most expensive country in the OECD in which to own a mobile phone.

On the broadband front, it's the same old story. Broadband uptake is among the lowest in the OECD and growing slower than most other countries. For the record, we're 22nd out of 30.

The report says our poor uptake and slow growth can't be explained "by being at an earlier stage of the diffusion process of broadband compared with other countries, as New Zealand was one of the first OECD countries to offer commercial broadband services".

Now the good news - for Telecom, that is. The report criticises the Commerce Commission's recommendation that the Government regulate mobile termination rates, or what landline providers charge to end calls on mobile networks.

The report says it is "extremely difficult" to predict what effect regulation would have on mobile prices, and warns the Government against messing with the market.

Telecom and Vodafone are opposing this recommendation, and although the OECD's point is more in line with Vodafone's complaint, it also serves Telecom's cause well.

In the case of broadband, the authors of the OECD report seem to have swallowed Telecom's spin. The report says the biggest reason for low broadband uptake is that dial-up is very good and cheap. Another big reason, it says, is the limited availability of cable broadband and "a geographical profile that constrains its expansion".

The report makes further justifications by saying that unbundling of the local loop "is not the only way to achieve competition in the retail market", and that it's unclear whether doing so has had any positive effects elsewhere.

It also says new technologies - including wireless, cable, fibre and satellite - are going to play a bigger role in driving broadband uptake. 

The OECD summarises by saying the best role for the Government is to effectively keep its nose out of market affairs, and instead create incentives to draw companies into investing.

Well, there must be an echo in here, because it seems like this is all right out of Telecom's mouth.

That's because it may as well be. Many of the OECD report's conclusions seem to be drawn from a report by American analysts Jerry A. Hausman and J. Gregory Sidak, whom one industry source points out are two of Telecom's often-used consultants.

The source, who asked not to be named, wonders whether "there's been a significant attempt to influence [the OECD] with that kind of commentary".

It sure looks like it. Telecom has been complaining long and hard about the rules under which international studies, such as those done by the OECD, are conducted.

The company has argued that New Zealand is special, and that we have all manner of special circumstances that aren't taken into account. Dial-up ubiquity, free local calls, a difficult geography - all are excuses Telecom has put forward.

The company has also said it's doing all it can, and the blame for our poor showing should be placed at the feet of competitors, who aren't investing.

But as much as we might hate to admit it, New Zealand isn't special.

Every OECD country has unique circumstances, and these are taken into account when such studies are done. You don't hear the Czech Republic (ranked 26th) citing its high beer consumption as a reason for its woeful broadband showing, or Greece (ranked last) saying its weather is too nice to care about internet connections.

Telecom's excuses are easily disputed. Of course dial-up is popular - broadband isn't much faster, but it's much more expensive. Free local calls aren't a barrier to uptake, as countries such as Canada - fifth in OECD rankings - have proved.

The real reason New Zealand lags in broadband uptake couldn't be simpler: high prices and poor service that stem from a lack of proper competition, which doesn't exist because of an uncertain regulatory environment that favours Telecom.

How Telecom managed to convince the OECD to put stock in its excuses and to urge the Government to avoid meddling in its affairs is a very curious development. We have a right to be nervous.