Commerce Commission takes ‘extreme’ positions on telco rules   15 Jun 2012

Article - BusinessDesk

Commerce Commission taking ‘extreme’ positions on telco regulation

By Pattrick Smellie

June 15 (BusinessDesk) - New Zealand is gaining an international reputation for "extreme" and unpredictable regulation by its competition watchdog, the Commerce Commission, says Andrew Bascand, managing director of fund manager Harbour Asset Management.

In a submission to the telecommunications commissioner, Ross Patterson, Bascand says the commission's approach puts the success of the government's ultra-fast broadband initiative at risk, and could be a turn-off for foreign investors considering buying shares in partially privatised state-owned energy companies.

His comments follow what he describes as last month's "policy shock" of draft regulations for the unbundled copper local loop - the traditional mainstay infrastructure of the national telephone system, which fibre-optic cable will replace as ultra-fast broadband rolls out nationwide.

The government's $1.5 billion subsidy plan is intended to accelerate uptake of UFB, but the Commerce Commission's approach suggests it "has a mandate to tilt the playing field back to copper," while using a flawed benchmarking approach to regulation, Bascand said.

"Telco industry regulation needs to have a policy anchor that is consistent across a broad range of objectives involving customer outcomes, the allocation of capital, and the recognition of the benefits to society in the move to fibre that may not just be consumer-related, he said.

"Regulated returns need to have a cost of capital framework, not a benchmarking framework," said Bascand.

While releasing draft regulations for consultation was a good practice, "some market participants observe that the commission seems to take an extreme position initially on some issues."

That raised risk premiums for investors at odds with the commission's role as a "core player" in New Zealand's capital markets.

The commission's drafts appeared to adopt tactical positions "to be used as a bargaining tool with companies", or to allow it conduct "goal-seeking exercises."

Bascand said if a benchmarking approach had to be used, it would make most sense to use the agreed price for basic UFB service of $37.50 a month, since that had been "tested in the real world through a long, robust and hard-negotiated tender process" overseen by Crown Fibre Holdings.

Telecom, which split off its infrastructure unit Chorus earlier this year to participate in the UFB roll-out, won the lion's share of the UFB funding in a process that policymakers were anxious to ensure did not force pricing for copper-based serviced to fall so far that uptake of UFB stalled.

However, last month's draft decision had led Goldman Sachs to cut its forecast of UFB uptake by 10 percent, suggesting outcomes that "run entirely counter to government policy", tilting the playing field in favour of copper and forcing Chorus to accept uneconomic returns on its copper network.

However the issue was handled, the government should be aware international investors now look askance at New Zealand regulators, making them wary of investing in partially privatised assets where regulatory risk remains high, such as the electricity sector.

"The government should contemplate legislation to ensure Chorus earns an appropriate return on their entire copper network and settles this matter before they embark on talking to global investors about IPOs of the SOEs," Bascand told Patterson. "Our recommendation is to set aside the UCLL and all other copper based investigations pending the full telco sector review."

While the review was scheduled for 2016, enough evidence of UFB uptake may have emerged in time for it to be held a year earlier instead.

(BusinessDesk)

Add a comment

Bookmark and Share

News

Historic move of New Zealand’s iconic documents

25 Apr 2017 News
24 AprilThree of New Zealand’s most precious constitutional documents were moved to a new location in a unique ceremonial... more

PM announces changes to ministerial portfolios

25 Apr 2017 Arts
24 April 2017Prime Minister Bill English today announced the appointment of Gerry Brownlee as Minister of Foreign Affairs, Nathan Guy... more

Business

McCully to Viet Nam to further Vietnamese partnership

25 Apr 2017 Business News
23 April 2017 Foreign Minister Murray McCully will travel to Ha Noi today to meet Vietnamese Deputy Prime Minister and Foreign... more

Positive step forward for pay equity

1 Mar 2017 Business News
28 Feb 2017 State Services Minister Paula Bennett has welcomed an agreement with unions which will see the Government’s new pay... more

Living

3rd Position, Louis Vuitton America’s Cup World Series

21 Nov 2016 Lifestyle
Emirates Team New Zealand EMIRATES TEAM NEW ZEALAND CLOSES IN 3rd POSITION THE LOUIS VUITTON AMERICA’S CUP WORLD SERIES more

Arts Foundation Award recipients for 2016

14 Nov 2016 Lifestyle
The Arts Foundation Next generation of internationally acclaimed talent among the Arts Foundation Award recipients for 2016Under ... more

Property

NZ house prices gain 11% in October

14 Nov 2016 Property
Article - BusinessDesk Monday 14 November 2016 10:28 AM NZ house prices gain 11% in October, driven by sales of higher value homes By... more

RBNZ sees pressures building in Auckland construction sector

11 Nov 2016 Property By Paul McBeth
Article - BusinessDesk Thursday 10 November 2016 04:04 PM RBNZ sees pressures building in Auckland construction sector By Paul ... more

Migration

Suspension of decision making authority

25 Apr 2017 Migration
24 April 2017Immigration Minister Michael Woodhouse is taking steps to improve Immigration New Zealand’s decision making... more

Recognised Seasonal Employers employ more Kiwis

8 Feb 2017 Migration
7 Feb 2017 Immigration Minister Michael Woodhouse welcomes a report showing the vast majority of employers who take on seasonal... more

Travel

eGate expansion project nears completion

25 Apr 2017 Travel & Tourism
21 April 2017Customs Minister Nicky Wagner today announced 15 new eGates are now fully operational at Auckland Airport arrivals,... more

New Zealand commits to Fiji border security

28 Mar 2017 Travel & Tourism
27 March 2017 Customs Minister Nicky Wagner is welcoming a commitment to help strengthen Fiji’s border security. New Zealand... more

Sport

World Masters Games 2017 commemorates Anzac Day

25 Apr 2017 Sport
25 April 2017An Anzac Day service at Queens Wharf and a star-studded New Zealand versus Australia exhibition basketball match will be... more

NZ Goverment welcomes World Masters Games

25 Apr 2017 Sport
21 April 2017Economic Development Minister Simon Bridges and Sport and Recreation Minister Jonathan Coleman have today welcomed the... more

Columns

Gordon Campbell on the Gareth Morgan crusade

11 Nov 2016 Opinion
Column - Gordon Campbell   Gordon Campbell on the Gareth Morgan crusade First published on Werewolf more

Gordon Campbell on the US election outcome

10 Nov 2016 Opinion
Column - Gordon Campbell   Gordon Campbell on the US election outcome more

Kiwi Success

Spencer to be Acting Governor of Reserve Bank

8 Feb 2017 Appointments
7 Feb 2017 Finance Minister Steven Joyce will appoint current Deputy Reserve Bank Governor Grant Spencer as the Acting Governor of... more

Temporary Chairs appointed to Canterbury and South Canterbury DHB

1 Feb 2017 Appointments
30 January 2017 Health Minister Jonathan Coleman has today appointed temporary Chairs to the boards of Canterbury and South... more

Recruitment

New employment resource for young people

1 Mar 2017 Recruitment
28 Feb 2017 Tertiary Education, Skills and Employment Minister Paul Goldsmith and Associate Education Minister Louise Upston have... more

Record number of people in employment

1 Feb 2017 Recruitment
1 Feb 2017 Tertiary Education, Skills and Employment Minister Paul Goldsmith has welcomed the record number of New Zealanders now in... more

s