Regulation - time to get its boots on

Light-handed regulation has failed, so it's time for a boots-and-all approach

Telecom’s attempts to have its cake and eat it too have finally caught up with the company.

It’s been amazing to watch Telecom over the years; lesser companies would have simply tried to avoid regulatory intervention, but not Telecom. It has repeatedly waited until the last minute before offering up a regulation-avoiding tactic and then tried to stiff its competitors with new terms and conditions to boot.

At the Commerce Commission’s 2003 unbundling conference there was news of a newer, humbler Telecom that had offered ISPs a new data tails service. That helped the Commission justify the “no-unbundling” decision, even though the Commission was also taking Telecom to court for abuse of its market position.

Then there was Project Probe, in which Telecom somehow convinced the government to give it tens of millions of dollars to increase competition in broadband services.

If that was all Telecom did it would be worth regulating the company just to stop it doing that sort of thing in the future, but Telecom doesn’t rest there.

At the same time that it makes these last-minute offers, it also makes sure the service that seems so welcome is in fact a price-gouging way of shifting the costs from Telecom to its competitors.

No sooner had Telecom announced its original wholesale offering than the fine print became clear: 10GB aggregate traffic limit per customer per month, ruling out unlimited traffic plans. New charges for backhaul. Churn fees. Why does one ISP have to pay Telecom a churn fee when customers switch to a third party ISP? Because nobody’s stopping it, that’s why.

This time round the last minute offer of real entry-level broadband services — 3.5Mbit/s download and 512kbit/s upload — have become the straw that surely must break the camel’s back.

These services will see the end of the full speed JetStream plans, so we’re actually getting slower speeds at a time when other ISPs and telcos around the world are increasing speeds for the same cost. The changes will also see a reduction in the aggregate traffic limit from a paltry 10GB per month to a worthless 4GB per month.

Any family with more than one user will chew through 4GB in short shrift. For businesses it’s simply not enough. Of course, Xtra is selling plans at much higher traffic limits — will that same courtesy be offered to customers of non-Xtra ISPs? Yes, but it will cost the ISP more to deliver that service.

Then there are contention rates. This is the sharing of bandwidth so even though you, the customer, have bought a 3.5Mbit/s service, you’re not getting that unless everyone else you share with is offline. Think of it as the 21st century equivalent of the party line.

While UK ISPs are advertising contention rates of 50:1 or even less, Telecom’s new wholesale offer is 85:1 for 2Mbit/s users and a whopping 148:1 for the new 3.5Mbit/s users.

This level of detail is now, finally, more easily understood by the politicians. The hefty weight of the Prime Minister’s office is being brought to bear, with dire threats of greater levels of regulation.

But what can the government actually do? The lightest-touch regulatory approach has failed and anything less than a boots-and-all plan will fail, given Telecom’s attitude to the regulatory regime. The argument that any intervention must be carefully weighed up against its impact on investment is a red herring: the current regime is restricting investment, not encouraging it.

In the first instance, we have to unbundle the network. It’s that simple. The government alone cannot convince Telecom to offer better deals, so let’s let the competitors do it.

Secondly, Telecom needs to learn that retail cannot come before wholesale. It has repeatedly offered retail plans ahead of its wholesale equivalents. It must be required to introduce wholesale plans at the same time or, preferably, before it launches its own retail plans.

The retail arm has driven the new product cycle for too long — it should be driven by the wholesale team and the needs of the wholesale customers, not Xtra.

Thirdly, Telecom must be broken up. The wholesale division must be legally separated from the retail and safeguards put in place to ensure that Xtra and other Telecom retail services aren’t given preferential treatment.

This is heavy handed regulation indeed, but anything less just won’t work because Telecom’s attitude, quite rightly for a public company, is that it’s in this business for itself. The government has to be in the business of governing for the benefit of the rest of us. Will it make the changes necessary? We have until June, when the government concludes its telco regulation stocktake, to make sure it does.

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