25 June 2004
It is little wonder the Communications Minister, Paul Swain, appeared ill at ease last month when he announced that Telecom would keep its monopoly on the local loop. The barbs delivered by thwarted rivals and consumer advocates were bound to be a source of discomfort. But not so awkward as to ruffle an experienced politician. It now transpires, however, that Mr Swain was defending a decision he had advised against. Cabinet rules might have required him to go into bat for that policy but they could not make him look as though he was relishing the situation.
Official papers have disclosed that Mr Swain believed, in fact, that the Commerce Commission should be asked to reassess its recommendation that Telecom's local loop not be opened to competition. He had decided this on the basis of advice from the Ministry of Economic Development. His suggestion fell on deaf Cabinet ears. Extraordinarily, ministers were concerned that a reassessment would delay the benefit to consumers of the commission's suggested fob-off - a form of wholesaling called bitstream access for one of Telecom's entry-level high-speed internet services. Never mind that their decision ignored the infinitely more significant implications of unbundling, especially the huge potential benefit to consumers. Or that Mr Swain had far more knowledge of the issue than they did.
This folly could be viewed merely as the latest chapter in a comedy of errors if it were not so serious a matter. Unbundling, which would require Telecom to rent local telephone lines to competitors, should have been instigated at the time of privatisation. It was not, thereby gifting Telecom the defence of property right. The company has used this to make the local exchange the last, jealously guarded vestige of its monopoly.
Four years ago a ministerial inquiry led by Hugh Fletcher recommended unbundling. It was ignored. Last year, a draft proposal by the Telecommunications Commissioner, Douglas Webb, came to the same conclusion as Mr Fletcher. Mr Webb reckoned the spur of competition would mean a $204 million gain over five years for consumers and businesses, mostly from lower prices. Yet a few months later he changed his mind, on the basis that unbundling would be technically difficult for Telecom and that the exercise had not always proceeded smoothly overseas.
This about-turn was as startling as it was ill-conceived. A peer review conducted for the Government concluded that Mr Webb had reached conclusions not supported by his own analysis. Crucially, he had underestimated the benefits for users. The Ministry of Economic Development's verdict reinforced this criticism. But Mr Webb's change of heart handed Telecom a lifeline, and this it seized upon to influence key Cabinet ministers.
Telecom insists not only that it has property rights but that its share price would suffer if unbundling were sanctioned. Clearly, it would have to be compensated in some shape or form. But consumers should not have to suffer for all time for an error during the privatisation process. They should not be hostage to a company that contemptuously charges lower residential line rentals in Wellington and Christchurch than all other areas because TelstraClear offers competition in local services in those cities. Such tactics, however understandable from a purely business and shareholder perspective, diminish sympathy for Telecom.
Mr Swain's instinct was correct. It says much that New Zealand is the only OECD nation to have looked at unbundling and not introduced it. Equally revealing are Telecom's pricing policies and its determination to cling to its monopoly. The Government has been short-sighted. At some stage, the issue will have to be revisited. Until then, the consumer is the loser.
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