Sometimes it feels like open season on the Commerce Commission. I guess it’s inevitable. An increasing number of the country’s largest businesses are subject to regulatory scrutiny, the stakes are very high and times are tough.
Further, the change to a new government that is allegedly more to the right may give some a sense of hope that political sympathy in future will lie more with the Commission’s targets.
So we’ve seen a number of large businesses either take sideswipes at the Commission of late. Others, including some in the telco sector, have called for a merits review process as an extra layer of checks and balances on the Commission’s processes.
None of this is especially surprising. But the issues are complex.
For every supplier business that is constrained by regulation, there are many thousands of customer businesses and consumers who are beneficiaries of that process. For example, both electricity and telecommunications are regulated, so telcos benefit as consumers of electricity. Yet they grumble about being regulated themselves in a process which in turn benefits power companies who buy telecommunications.
Even within telecommunications there is often ambivalence. For example, Vodafone has criticised the Commission’s processes — yet had the Commission not imposed the detailed regime to unbundle the local loop, and the wholesale regime, Vodafone may not have achieved the strong foothold it gained in the fixed line market through its acquisition of Ihug.
A small country like New Zealand is always going to have a disproportionate number of industries with insufficient competition to ensure satisfactory consumer outcomes, so the number of sectors subject to regulation will not reduce in the short term.
This leads to a heavy burden on the state to maintain a complex administrative structure around the process, with large numbers of specialist competition lawyers dedicated to making the arguments on both sides — often repetitive, predictable and loaded with rhetoric rather than insight.
So what is the solution?
Some in the industry are calling for a “merits review” process as a safeguard against the Commission getting things wrong. On the face of it the argument is seductive — most countries have one, there’s a lot at stake, and justice has to be done. How can you argue against fair play and hold your head up?
However, the downside is that a further layer of checks and balances will add even more administration – more commissioners, supporting officials, judges, competition lawyers, conferences, submissions, hearings and industry lobbyists. Not an attractive outcome for a struggling small economy that desperately needs more productive and fewer administrative people.
And a merits review might go either way. Remember the Commission’s infamous eleventh hour rejection of unbundling in 2004? What if a consortium of users had invoked a merits review process in the wake of that outcome? Would it have been overturned, giving us a two-year head start on LLU?
There is one other argument against a merits review, namely the propensity of those who benefit from the status quo to use a merits review to delay the imposition of an outcome. In such a fast moving industry as telecommunications, delay can be crippling or even fatal to a new entrant. Ask anyone who worked at Clear a decade ago.
The merits review should not be dismissed out of hand, but should be treated with caution. The challenge for the proponents is to suggest a way it could be implemented in a small country that minimises unproductive cost, delay, and incentives for regulatory gaming.
But let me end on the big picture. The Commerce Commission takes more than its share of criticism. It’s time for some of those who are beneficiaries to put their hands up.
I’ll nail my colours to the mast — in my books, the work of the people at the Commission since it moved onto the telecommunications paddock seven years ago has been exemplary. They are professional, transparent, approachable, and thorough in their processes. They work in highly contentious fields and often have to take criticism on the chin, which they do with dignity. In my books, the Commission deserves a lot of kudos and support from the business sector for its excellent work in this complex and critical field.
Newman is the CEO of the Telecommunications Users' Association of New Zealand