Was the push to get fibre in the ground at the expense of good policy?

Part two of Q and A with Bronwyn Howell, GM of the NZ Institute for the Study of Competition and Regulation

In the second part of Computerworld's Q and A interview with Bronwyn Howell, general manager of the New Zealand Institute for the Study of Competition and Regulation, she discusses whether politics has got in the way of policy in the government's pursuit of ubiquitous high-speed broadband connectivity.

What is the way forward (now that UFB and RBI contracts have been signed)?

I don’t know, because we don’t know the competition intentions of the government.

While their intention may be to have this brand new network, it is not being implemented in a vacuum. It is being implemented in an environment where we have a relatively fast maturing broadband market already.

We are up to over 62-63 percent of households with broadband connections. Internationally countries are levelling out at 70 percent of households having broadband connections.

We have got to look at the transition issue, while the competition policy around transition issues is going to be hugely important in ensuring that we get the networks working efficiently.

In the worldwide scheme of things, generally two networks are feasible, running side by side in most countries in densely populated areas - for example Amsterdam, New York, Washington. Sydney and Auckland are potentially areas where it would have been feasible to have had more than one network operator in competition.

Ironically the one area where you could have had infrastructure competition is Auckland and Vector didn’t get the deal.

On the other hand Christchurch, which has already had infrastructure competition with Telecom and Telstra there since 2000, gets a third operator coming in (Enable).

So it seems to me that there is no competition policy driving this and that the competition thinking has fallen into a gap, between the desire of the government to have a new network built and the role that we now see the Commission in.

The Telecommunications Commissioner still gets to continue regulating the copper network as if there was no fibre there and it has no mandate to investigate the broadband market.

It can enforce the undertakings that Crown Fibre has entered with the Crown Fibre companies but it can’t actually take a market view and set prices, terms and conditions in order to achieve a concerted, cohesive, competition policy.

So what we have got here is an absence of an overarching competition policy that will govern the transition period. If we look in Australia they have overcome all this by saying we’ll foot the whole bill.

And that’s a huge expense that a small country might not be able to afford.

It is, but now we have to start questioning about what the policy is for and why we’re doing it. Should we have different rules for low density areas as opposed to high density areas? How are we going to cut the deals differently. Do we now need to think about these competition issues differently in different parts of the country.’

So you are saying incentivise rural or less populous areas, make different regulatory settings to metro areas?

Absolutely, because in order to get the investment right we have got to think differently. Now to some extent we have done this differently. The 75 percent of the country that comes under the UFB has been set into one set of targets. The 25 percent that makes up the RBI is different. I’m leaving the RBI to one side, but one would have also thought that we would need to think about what sort of investments we need in that RBI area.

This whole issue is about having an overarching policy objective about just what sort of competitive environment we’re going to get here. And how we’re going to manage it, because competition is not an end state, it is a process.

Now you see why I am saying that we don’t have any clarity and we’ve had nothing that has come out of any statement or even the actions of government to determine what that is going to be.

Do you think that is partly because government doesn’t need to, that this is not an issue that is of concern to the New Zealand public?

Excuse me, all markets compete and we need a set of rules on how it works. We need a policy because the government has decided that we are going to have something there that affects competition in an area that is already subject to regulation.

You can’t just decide to create a new planet somewhere and regulate it the way you want it to be, you’ve got to think about how that new planet interacts with what you have already got.

But this is not an issue that seems to be raging anywhere outside of the telecommunications industry, so politically the government hasn’t addressed these issues because politically it hasn’t had to.

That’s an issue about where we’ve got populous politics and policy in terms of the responsibilities of the ministries who should actually be taking into account the broader public interest in their advice to the minister on what’s happening here.

Because while politicians might not have that on their radar it must surely been on the radar of the policy in the ministries advising him. And if it wasn’t I think there are some questions to ask why it wasn’t.

The MED did have a submissions process in October last year that I submitted on with David Heatly. As well, the Telecommunications Commissioner put in a submission which is available on their site which does in fact highlight that these issues that need to be addressed.

So there is a bit of a failure there in terms of policy analysis in the MED?

I don’t know about this, but one could postulate that maybe delivering the minister’s objective of getting fibre in the ground was more important than delivering a good policy framework into which to deliver a fibre network into the ground.

Because we have seen a lot of pressure put on to get those first fibres out in the ground, rolled out in Northland before Christmas.

To a certain extent there has been a fixation on fibre, would it have been better to focus on broadband services and how those services are delivered - wireless, copper, fibre?

Behaviour in the fixed line is going to, at the margins, affect what happens in mobile. Given the current range of applications and technologies available and the development of things like LTE, which will be here as soon as we can sort out the spectrum auction, we may find that for the vast majority of customers the technology substitution [mobile for fixed] may be a real event.

You touched on 700MHz spectrum allocation, a big topic right now; what are your initial thoughts and what do you see as the right policy settings that the MED should be considering at this critical point?

Again, what is right here? What is the objective here? What are we trying to achieve? What is the competitive outcome we are trying to achieve here and why are we trying to achieve it?

These underlying questions are far more important then whether we choose a chess board or a monopoly board to do this with.

These are the big questions that seem to get lost in the minutiae. You are not going to get an answer from me that’s going to give you an answer on how to do it, because selecting the right formula needs some clarity of objectives in the first place and that’s the thing I am not seeing.

And should there be some sort of regulatory setting around the mobile owners networks. There are MVNOs on their networks but it is a reseller agreement, MVNOs can’t offer prepay mobile services, for example.

Now you start to see why we need to see this as a broadband market, then in fact we can start putting some of these issues on the table. But while we continue to look at it as a fibre market, a copper market, a wireless market, and a mobile market, we can’t get these issues on the table.

Now you see why I am coming back to the point that the fundamental thing that is lacking in this whole thing is a competition policy in the broadband market.

This is where we have got sidetracked by different technologies, rather than thinking about the fundamental market presets that are really driving this stuff.

See part one of Q and A interview with Bronwyn Howell here.

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