Operational Separation for Telecom

The Telecommunications Amendment Act has been reported back by the Finance & Expenditure Select Committee, and it looks to be very good news.

The Committee was almost unanimous in endorsing, and improving the bill. MPs from Labour, National, NZ First, Maori, United Future and the Green Party all agreed on the report. ACT were, not surprisingly, against.

The major change is that the Select Committee has voted to impose a three-way operational split on Telecom into network, wholesale and retail arms. This is the British Telecom model, and something InternetNZ advocated in its submission.

This model should actually allow the market to work by putting in place the right incentives for Telecom at the network and wholesale levels.

Other aspects of the Bill are:
* A maximum $10 million fine for not complying with a separation undertaking
* UBS pricing principle remains retail minus
* Provision for competitive backhaul services between exchanges
* No structural separation option

In relation to structural separation, that is the one big thing missing which could have been useful. Having that as a reserve power would help with a genuine culture change at Telecom to make operational separation work. But hopefully it is unnecessary.

Also worth quoting the Select Committee on compensation:

“There are many precedents for this type of regulatory action when a company with market power is required to provide competitors with access to its network or faces controls over the prices it can charge. Moreover, Telecom will be paid a price based on the efficient costs of providing the unbundled local loop. The majority also noted that when Telecom shares were initially offered for sale the Government reserved the right introduce further regulation if effective competition did not emerge.”

This is quite right to my mind (I await being told by the Libertarianz I am out of my mind). A vertically integrated monopoly is that rare beast which should be regulated if competition is stymied. And the problem is that for over a decade Telecom has stymied effective competition. Eight years for number portability is a sad joke. The commercial UBS service was disastrously rolled out. Telecom frankly are lucky to have escaped action for so long. They got too cute at blocking effective competition, that the original reserve power of regulation became the only option.

Kudos to the Minister (David Cunliffe) and the Select Committee Chair (Shane Jones) for getting the bill to this point, and also to all the members of the select committee. As I said when I blogged about our oral submission back in September, there was some really excellent questioning and discussion from MPs indicating they really had done their homework on what can be a very complex area.

It should come up for second reading next week, and based on the select committee report should be passed by the House with a 119-2 vote.