Tread lightly, Newman tells Government

Politicians should resist the urge to intervene in our telecommunications market, TUANZ head suggests

TUANZ chief executive Ernie Newman questions whether government intervention in the telecommunications market will work to the long-term good of the market— or of users.

If the Government shores up the telecomms infrastructure through taxpayer-funded schemes such as Probe, Newman believes this could act as a deterrent to private providers taking a punt on the market.

In an address at the TUANZ (Telecommunications Users' Association of NZ) Telecommunications Day late last month, Newman examined some of the other exercises in privatising utilities that have been less than successful.

For example, the electricity industry “went through a period of chaos in the wake of privatisation,” he says. Customers were faced with a confusing choice of suppliers, the “churning” of customer accounts from one supplier to another was slow. “Even now we are being threatened with power shortages in [Auckland] in just two years because of ambiguity [concerning] whose role it is to make decisions about the next round of infrastructure investment.”

Railways is also a confused picture. “Recently, our Government admitted that the rail network it sold in 1993 — and bought back for $1 in 2004 — is in appalling shape, and that the $200 million of taxpayers’ money which has been set aside to upgrade it won’t be enough.

“Then there are the ports,” he says. “Just this month [July], our nation’s biggest port returned ignominiously to public ownership.”

The telecomms business is an even more complex business, he says. It has one unique characteristic: an assumption of reliable interconnection between providers — “the absolute expectation we all have that any phone we pick up is capable of connecting us to any other phone on the planet.” Without independent regulation, the necessity of negotiating interconnection agreements with other providers “becomes an insurmountable barrier to entry,” Newman says.

New Zealand has belatedly installed such regulation, yet is still one of the furthest behind globally when it comes to developing a modern, efficient telecomms service, particularly on the broadband front, Newman says. “The investment required is a challenge and, unless there is very healthy competition to drive that investment, the nation faces the likelihood of lagging [behind].”

However, a dominant carrier which does not take the broader economic view can make perfectly rational decisions that are good for its shareholders and choose, for instance, to squeeze the last ounce out of current technology, delaying the move to next generation technology, says Newman. This puts pressure on the Government to intervene, as has happened with Probe.

Initially, Probe’s supporters hoped the project would facilitate competitive broadband but, in the end, the lion’s share of the funding went to Telecom. TUANZ defended that outcome, says Newman, but critics "perhaps with some justification, see taxpayers subsidising a profitable public company for making an investment it should have made in the normal course of trade”.

The MUSH (Municipal, University, Schools and Hospitals) community networks incentive, and the advanced research and education network, will again see a partial re-entry into the market by government, says Newman. In this situation, there needs to be a better understanding of where the roles of private industry and government begin and end, he adds

Newman poses three questions:

“First, if the investment aspirations of the carriers are out of sync with the legitimate needs of the community … at what point does public investment have a role?

“Second, once a decision is made that government should intervene, what rules should apply to ensure that both private investors and taxpayers get a fair outcome?

“Third, how do we avoid the private sector holding back on investment in the expectation that if they [delay] long enough the taxpayer will come to the party?

“And, fourth, how do we get these questions into the policy debate?”

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