Business NZ reignites telco regulation debate

Update: ComCom issues telecommunications regulation guidelines

Business New Zealand says better and more effective regulation that encourages investment is needed in telecommunications and in other areas of the economy to boost productivity.

Earlier this week, the lobby group issued its productivity manifesto, "Setting New Zealand Apart" (pdf), which calls for a return to light-handed regulation in telecommunications. That call was followed almost immediately by a flurry of concessions from telecomms providers on mobile termination rates, concessions given under the threat of reguation by the Commerce Commission.

Business New Zealand CEO Phil O'Reilly says it's important not to "over-read" the statement. He says what Business New Zealand is saying is that the Commerce Commission has to take more notice of the need to ensure proper pathways that provide certainty for infrastructure investors.

O'Reilly says both Telecom and Vodafone are saying uncertainty about regulation has the capacity to destroy value.

"That means these companies are potentially less likely to invest or invest as fast," he says.

Today, the Commerce Commission issued new draft guidelines explaining its approach and the process for regulating the telecommunications sector.

The commission says the guidelines will provide greater clarity for the telecommunications industry on how the commission exercises its powers and functions under the Telecommunications Act.

Telecommunications user association boss Ernie Newman says as a "philosophical, motherhood statement", he has no objections to the call.

"But we have a much more positive set of outcomes out of the current regulatory regime," he says.

Newman says we had light-handed regulation between 2002 and 2006 and it "demonstrably did not work". He says the market was consistently being gamed by those with market power.

He says the reforms brought on operational separation and local loop unbundling and were passed 119 to two in parliament.

"Our obeservation is that New Zealand users are far better off under the new Act and there has been an increase in investment since then.

"The regulatory settings are about right."

O'Reilly says regulation should be light-handed in the sense that it thinks about what might be done without regulation. He says the mobile termination glidepaths offered telcos is an example of this.

"If regulation is required, you should ask how to do it in a way that encourages and promotes investment," he says.

He says that applies throughout the economy and not just to telecommunications.

So how does O'Reilly explain the large increase in investment since light-handed regulation was abandoned in 2006?

Regulation is one further reason why companies might choose to not invest, he says. They might also choose to invest despite that, he says, citing heavy investment in China despite regulatory uncertainty there.

He says a small country like New Zealand should do nothing that gets in the way of companies that want to invest, especially when there is international competition for that investment.

Asked if he thought former communications minister David Cunliffe's 2006 reforms had failed, O'Reilly said he'd "need to take advice on that".

"Companies are complaining to us of the value destruction in regulation," he says. they are concerned about the regulatory settings of the last five years.

"I'm not saying everything is dastardly," he says.

However, he says, regulation needs to be considered carefully, particularly when large value investment is required and there is competiion for capital.

He adds that while it is the investors complaining, not the users, users are less likely to benefit if investment goes elsewhere.

"Regulation has a place when it is appropriate," O'Reilly says. He says the global financial crisis was caused by many things, but one of these was ineffective regulation.

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