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

Predator Free NZ 2050 to be a massive team effort

25 Jul 2016 Environment
New Zealand Government Hon Steven Joyce Minister of Science and Innovation Hon Nathan Guy Minister for Primary Industries Hon Ma... more

Minister clarifies China trade issue

25 Jul 2016 News
New Zealand Government Hon Todd McClayMinister of Trade 25 July 2016   Minister clarifies China trade issue Trade Minister Todd... more

Business

PM censures Trade Minister for 'head of a pin' answers

25 Jul 2016 Business News By Pattrick Smellie
Article - BusinessDesk Monday 25 July 2016 05:13 PM PM censures Trade Minister for 'head of a pin' answers on China trade ... more

Consultation for FMA, XRB, Companies Office funding

25 Jul 2016 Business News
New Zealand Government   Hon Paul Goldsmith Minister of Commerce and Consumer Affairs 25 July 2016 Consultation for FMA... more

Living

Young New Zealanders Making Films For Good

18 Jul 2016 Lifestyle
The Outlook for Someday Young New Zealanders Making Films For Good What does sustainability mean to you? Since 2007 The Outlook for... more

Review: NZ's Pitch Black - live in London

8 Jul 2016 Entertainment By Charlotte Everett
20 years after their debut at The Gathering, Pitch Black have satiated a packed venue of fans at London’s Oslo, in... more

Property

House prices to peak next year on new supply

25 Jul 2016 Property By Paul McBeth
Article - BusinessDesk Monday 25 July 2016 House prices to peak next year on new supply, lower migration: Infometrics July 25... more

All five leading retail banks require 40% deposit

21 Jul 2016 Property By Fiona Rotherham
Article - BusinessDesk Thursday 21 July 2016 04:55 PM UDATE: All five leading retail banks require 40% deposit from property ... more

Migration

Kiwis could be affected by tighter UK rules

30 Mar 2016 Migration By Audrey Young
British High Commissioner Jonathan Sinclair is defending changes to skilled migrant rules for Britain but suggests they won't affect... more

Immigrants' attitudes to corruption worries SFO

17 Feb 2016 Migration By Sophie Boot
Feb. 17 (BusinessDesk) - New Zealand's record inbound migration has undermined the country's squeaky-clean reputation because of an... more

Travel

NZ guest nights fell in May

12 Jul 2016 Travel & Tourism By Tina Morrison
Article - BusinessDesk NZ guest nights fell in May, snapping 25 consecutive monthly gains July 12 (BusinessDesk) - New Zealand guest... more

China's Tianjin Airlines eyes Auckland service

11 Jul 2016 Travel & Tourism
Article - BusinessDesk Monday 11 July 2016 03:36 PM China's Tianjin Airlines eyes Auckland service By Edwin Mitson July 11... more

Sport

Core group of All Blacks Sevens players re-sign with New Zealand Rugby

25 Jul 2016 Rugby
The core of this year’s All Blacks Sevens squad headed by veterans DJ Forbes and Tim Mikkelson will anchor the side through the... more

Emirates Team New Zealand appoints Southern Spars to build 2017 America's Cup boat

25 Jul 2016 Sailing
Southern Spars today announced it has been appointed to build Emirates Team New Zealand’s boat for the 35th America’s... more

Columns

Gordon Campbell on Tony Blair and the Chilcot Report

7 Jul 2016 Opinion
Column - Gordon Campbell Gordon Campbell on Tony Blair and the Chilcot Report | werewolf more

Gordon Campbell on our refugee response, and a TPP rewrite

14 Jun 2016 Opinion
Column - Gordon Campbell   Gordon Campbell on our paltry refugee response and a brazen US rewrite of the TPP First published at... more

Kiwi Success

New Supreme Court and Court of Appeal appointments

13 Jul 2016 Appointments
New Zealand Government Hon Christopher FinlaysonAttorney-General 13 July 2016 New Supreme Court and Court of Appeal ... more

Awards champion public service excellence

7 Jul 2016 People
New Zealand Government   Hon Paula Bennett Minister of State Services 7 July 2016 Awards champion public service... more

Recruitment

Fletcher chases 100 ex-pat Brits

7 Jul 2016 Recruitment By Paul McBeth
Article - BusinessDesk Fletcher chases 100 ex-pat Brits as construction sector faces capacity constraints July 7 (BusinessDesk) -... more

Zero-hour contracts gone, PPL extended

10 Mar 2016 Recruitment
New Zealand Government Hon Michael Woodhouse Minister for Workplace Relations and Safety 10 March 2016 Zero-hour contracts gone, PPL... more

s