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

Appointment of New Director of Rangi Ruru Boarding

25 Jan 2015 News
Treena Ruwhiu is already well known to many Rangi girls and families as she has been a senior and much respected member of the... more

Dramatic photos: Fox Glacier's retreat causes valley to rise by a metre

26 Jan 2015 Environment
A series of photographs taken over 10 years has revealed the dramatic changes to one of New Zealand's most famous glaciers. The Massey... more

Business

MARKET CLOSE: NZX 50 charts new record high, led by Spark

26 Jan 2015 Business News
By Paul McBeth Jan. 26 (BusinessDesk) - New Zealand shares rose to a new record close as holidays in Auckland and Australia kept... more

NZ services sector activity ends 2014 on up note

26 Jan 2015 Business News
By Paul McBeth Jan. 26 (BusinessDesk) - New Zealand's services sector activity picked up in December, led by wholesale trade and... more

Living

Could That Wetland Photo Win You An Overseas Trip?

26 Jan 2015 Arts
Local entries into an international photo competition for young people to mark World Wetland Day are encouraged by Hawke’s Bay... more

Wellington SPCA Open Day

26 Jan 2015 Lifestyle
Wellington SPCA will be holding its second annual Open Day on Waitangi Day, February 6th, at its Newtown Animal Care, Education and... more

Property

Housing warning: It's an Ireland repeat

23 Jan 2015 Property
NZ expert sees factors behind Irish house crash happening here. Precisely the same factors that plunged Ireland into its housing... more

A building block for your future

21 Jan 2015 Property
A rare big block of Bay of Plenty development land in Ohauti, about 10 minutes' drive south of the Tauranga CBD, is to be auctioned... more

Migration

Free new Kiwi workshops return for fresh season

23 Jan 2015 Migration
Newcomer settlement support agency Auckland Regional Migrant Services (ARMS) is kick-starting the New Year with the return of its ... more

Overstayer numbers at record low

22 Dec 2014 Migration
Immigration Minister Michael Woodhouse welcomes new figures showing New Zealand overstayer numbers are at the lowest since 2000. A... more

Travel

Fifteen New Zealand spots to visit in 2015

23 Jan 2015 NZ Tourism
Need some inspiration for the year ahead? Here are some brilliant things to do around the country. 1. Crankworx The world's... more

Holiday parks making most of sunshine

22 Jan 2015 NZ Tourism
Holiday parks are reaping the benefits of the great holiday weather, starting the new year with record-equalling confidence... more

Sport

Equine industry joins GIA biosecurity agreement

26 Jan 2015 Equestrian
Primary Industries Minister Nathan Guy has welcomed a fourth primary industry to the GIA partnership today. The New Zealand Equine... more

Christy Prior Claims X Games Bronze Medal

26 Jan 2015 Sport
Aspen, USA, 25 January 2015 – Cardrona NZ snowboarder Christy Prior has this morning claimed New Zealand’s second medal... more

Columns

Gordon Campbell on Saudi Arabia and Islamic State

23 Jan 2015 Column
So the US has been holding talks in London this week with its 21 coalition allies, on how best to co-ordinate the military response... more

Gordon Campbell on the Greek election, and EU turmoil

22 Jan 2015 Column
Column - Gordon Campbell   Gordon Campbell on the election in Greece, and EU turmoil The election in Greece on Sunday –... more

Kiwi Success

New Zealand scientist receives top award in China

16 Jan 2015 People
Science and Innovation Minister Steven Joyce has welcomed the news that Kiwi scientist Dr Phil Rolston has been awarded the Chinese ... more

Graham Shaw, Peter Huljich join Pushpay board

13 Jan 2015 Appointments
By Suze Metherell Jan. 13 (BusinessDesk) - Graham Shaw and Peter Huljich have joined Pushpay Holdings' board as part of the... more

Recruitment

Tainui's Mike Pohio resigns

23 Jan 2015 Recruitment
By Fiona Rotherham Jan. 23 (BusinessDesk) - Mike Pohio, chief executive of Tainui Group Holdings, has resigned after eight years at... more

Manufacturing activity rises to decade high in December

22 Jan 2015 Recruitment
By Suze Metherell Jan. 22 (BusinessDesk) - Activity in New Zealand's manufacturing sector rose last month to its highest level in a... more