COMMENTARY: New regime a line in the sand

The government appears to have carried out a tricky but successful balancing act in coming up with its new regime for telecommunications.

The government appears to have carried out a tricky but successful balancing act in coming up with its new regime for telecommunications.

As responses from interested parties followed Communications minister Paul Swain's announcement of the government's response to the ministerial inquiry into telecommunications yesterday, the howls of outrage were notably absent.

Telecom, which had always maintained there was nothing wrong with the existing regime, didn't welcome change but declared the plans "measured and pragmatic" in comparison to the inquiry's recommendations.

Its competitors Clear and Telstra Saturn regretted that the new framework didn't go as far as local loop unbundling, but warmly welcomed it anyway. Vodafone will have been delighted that mobile services have, for the time being, left out of explicit regulation.

Tuanz, representing the users, didn't get the independent regulator it wanted, but declared the proposed framework a landmark.

On the political front, the delivery of the inquiry promised before last year's general election, and the prompt, orderly response will see Swain's stock rise again. The Alliance, which had one of its most able operators, Laila Harre, involved in the process, can look on a number of small, but key victories in policy detail – although, typically, it can be less sure that the voting public will notice.

National's Communications spokesman Lockwood Smith swung in behind the plan to the extent that it would be decent for an Opposition spokesman to do so. He reserved his scorn for the waste of money represented by an inquiry which had had so many of its recommendations rejected. But the inquiry was vital in actually establishing a debate. Without interested parties coming forward and making their arguments, it is difficult to imagine a result as agreeable as yesterday's.

The Greens, unsurprisingly, wished for stronger action to curtail Telecom's market dominance but welcomed the plan. The only outright antagonistic response was from the Act party spokesperson Muriel Newman, who accused Swain of having "a precarious grip on key industry issues" and declared that "the government has set the scene for massive intervention" in meddling with an approach to competition law that had earned the respect of the world.

Few observers of the industry will agree with Newman's view.

Supporters of the current regime can point to some significant benefits for users under the current regime – notably in the cost and quality of internet access compared to most other economies. But there was also the five-year court battle between Telecom and Clear over a simple interconnection agreement in the early 90s. (A struggle which, ironically, produced an interconnection regime that even Telecom came to despise.) The absurdly slow progress towards genuine number portability is not indicative of a healthy regime either.

Both interconnection and portability will, when legislation is passed, be in the hands of a regulator as a matter of final resort. Without that legislation there was nothing (bar the goodwill of the participants) to prevent progress being stymied the way it was throughout the 1990s.

The third designated service, wholesale access to Telecom's services for its competitors, has been a bloodbath since privatisation. Even Telecom's attempt (on the day before the inquiry released its findings) to show that the current model could work by offering wholesale access to its DSL service to Clear this year effectively functioned as a strong argument for a change of rules.

Players such as Ihug had tried and failed to get such access for a year. But, because Telecom needed concessions from Clear (acceptance of 0867, a temporary farewell to per-minute interconnect charges) and Clear desperately needed a fast internet strategy, a deal was suddenly hatched. Such a style of business provides no certainty for investors.

All this will be overseen by a regulator as a commissioner within the Commerce Commission rather than a stand-alone office as recommended by the inquiry. It's questionable how important the distinction really is, especially if the Commerce Commission can be encouraged to move in a less glacial fashion than it has in the past.

The regulator has also been handed the big ball to juggle. Swain made a point of noting that full local loop unbundling – meaning accces for competitors to Telecom's raw copper – is not entirely off the agenda and will be an option for the commissioner to consider.

This ought to serve as a quiet warning to Telecom, which has arguably had a state incumbent's level of access to the government's decision-making on these issues without being treated the way incumbents are in many other markets.

More than a decade down the line from deregulation, things are different here than they are in markets which have started later on the process, or taken different paths. Although legislation should never be made to prop up the share price of a private company, it will have escaped no one's notice that Telecom's share price sank below $6 this week. Whether impending regulation actually had anything to do with that is a matter for conjecture – Telecom has plenty of issues all its own – but it would have been a brave government that chose to be seen to clobber the nation's market-maker right now.

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