Cunliffe rejects Telecom separation plan
February 29th, 2008 at 3:05 pm by David FarrarDC may be facing the pressure in health, but I am very pleased to see he is still makin good calls in the Comms/IT area.
He has not accepted Telecom’s proposed separation plan. The proposed plan was a lot better than the draft plan, but still had aspects which would have left incentives in place which would increase the chance of failure.
InternetNZ, whose submission was to not accept the plan, is relieved and happy:
InternetNZ Executive Director Keith Davidson says it is very good to see Government has recognised the issues, and is committed to ensuring a robust operational separation plan that correctly incents the relevant divisions within Telecom. “Ideally the wholesale manager should have little or no group incentive and InternetNZ is pleased to see that a limit will be put in place.”
The changes needed are not huge, but of great significance potentially. Telecom today is a very different beast to a few years ago and are generally working well towards a structure where there will be greater competition and investment. The Minister deserves credit for not rushing the final plan by sacrificing quality for speed.
Related posts:
- Operational Separation for Telecom
- Telecom’s Separation Plan Approved
- 99.8% vote for Telecom Structural Separation
- Telecom and structural separation
February 29th, 2008 at 3:34 pm
David you are the single biggest contradiction on the NZ blogosphere. A right wing free marketeer usually. Whenever Telecom is mentioned you turn into an unreconstructed communist. The theft of private property by the government exercises you greatly in all areas except telecommunications.
Vote:February 29th, 2008 at 5:11 pm
Yeah, free market until it doesn’t suit him. A Purist until it doesn’t work. Mind you, he’s supporting National, not ACT, so I guess that’s consistent.
Vote:February 29th, 2008 at 5:28 pm
Yopu are a fucking sell out DPF….right wing limp wristed socialist arse wipe!
Vote:February 29th, 2008 at 6:02 pm
The issue is, Telecom’s plan incented the workers in the wholesale and network divisions via the profits made by the retail division. Naturally this would lead to favourable deals being granted by Telecom’s wholesale and network divisions to the retail division even when a better alternative existed, which distorts the market. What’s hard about that?
Cunliffe was right to reject it.
Vote:February 29th, 2008 at 6:07 pm
Off topic, sorry, but David you really need to change your Favicon. It looks like a steaming turd.
Vote:February 29th, 2008 at 7:51 pm
Reid, clearly you believe the state owns everything as well.
Vote:February 29th, 2008 at 8:26 pm
Cunliffe is hand in glove with Telecom’s competitors, big (Telstra and Vodafone) and small.
If he and the commission were even handed they would implement measures such as either internet email address portability, or if this is impossible, requirements for ISPs to forward email after a customer leaves for at least six months. The competitors clamoured for telephone number portability, but really don’t give a stuff about internet consumers. They just want to tap into the infrastructure that Telecom shareholders bought from the State and still own.
Many of those purportedly speaking on behalf of consumers, such as TUANZ, really speak only on behalf of their paying members who are service suppliers rather than true consumers.
Cunliffe likes to talk tough, as is also evident in the Hawke’s Bay health board case, but he rides roughshod over ordinary citizens’ rights whether they be mum and dad shareholders as in Telecom or voters as in Hawke’s Bay.
Vote:February 29th, 2008 at 8:45 pm
BB, in a situation like Telecom, where you have a formerly state-owned monopoly that owns the infrastructure because it built it, you cannot apply purist market philosophy.
One of Douglas’ mistakes was not to break it up when he sold it (another was to sell it for the price the taxpayer got). But who knew at the time what the infrastructure was to develop into?
In 1986 the internet didn’t exist (publicly), in 2008 it’s the comms network of the future. So how do you deal with that?
The progress of the world is based around communication, it’s what drives the world, from sail to coal to oil, from railways to the telegraph, from radio to television.
Everytime you get a new paradigm emerging you need to deal with the transition from the old to the new.
The US calls it anti-trust.
The transition needs a referee. Who else but govt can do it?
Vote:February 29th, 2008 at 9:10 pm
Reid:
I agree that, in hindsight, Douglas and co would have been better to have kept the copper network outside the Telecom privatisation. As you say technology proved that a wrong decision, and technology yet may make the copper network obsolete and overtake the whole argument.
However, once it became apparent that some control needed to be exercised over the copper network, the correct approach would have been to buy it back, as the rail network was bought. The Government had the resources to do this. This would have been fair. Shareholder rights would not have been trampled, and the state could have used this asset to fill what you describe as its anti-trust role, until technology makes this no longer necessary.
The State as an anti-trust agent is interesting. What’s it doing about airports, which with today’s planning straitjackets are natural monopolies? It is cool on turning Whenuapai into a natural moderator on Auckland International Airport for example. What about ACC, where an efficient private-public model was emerging, but the Government reverted to a State monopoly? Let’s not regard Labour politicians as white knights against monopoly.
Vote:February 29th, 2008 at 9:20 pm
Jack5, I’m only arguing that use of the mechanism is sometimes valid and I think in this case it’s a correct application.
With respect to how it’s applied in other arenas and whether it’s always applied appropriately by this or previous govts, I couldn’t possibly comment.
Vote:February 29th, 2008 at 9:30 pm
private property rights should be paramount. They are not offering to recompense the owners, they are in effect stealing shareholder value. I have been involved in the telecommunications business for nearly 20 years in NZ working for and against telecom at very senior levels. The simple truth is that we have seen no infrastructure investment from the people squealing about monopolies because their strategy has been to lobby the govt to give it to them for free at the expense of Telecom.
The exceptions are the gsm network and the the fixed network that Telstra now own. Voda are profitable and Telstra is completely and utterly rubbish.
This is simply a case of commercially inept govt ministers jumping on the bash Telecom bandwagon because they see it as a vote winner.
Vote:February 29th, 2008 at 9:41 pm
The problem is that Telecom are incompetent, not that they are monopolists. They would make far more money from offering a decent service than they do from gouging. I’m not sure regulation is the right response to incompetence.
Vote:February 29th, 2008 at 9:56 pm
I do not want to come across as a cheer leader tor telecom because I am most certainly not. But… PaulL you are a prime example of why the govt are up telecom.
The service we receive from telecom is as good as any other phone company. people whining about dsl speeds are dreamers. Everybody seems to thing we should be able to download terrabytes instantly. The truth however is that we are a country of a similar size to the UK….. But with only 4 million people and barely clinging to first world status our hopes for lightning fast speeds are just wishfull thinking.
The alternatives to copper are just too expensive. Fibre is not going to happen for the vast majority of kiwis and wireless just does not work fast yet.
We would all be better employing our complaining to the impending blackouts due to massive under investment by govt owned entities whilst retail prices have gone up over 60% since labour came to power.
Vote:February 29th, 2008 at 10:03 pm
Natural monopolies are regulated the world over – although I admit it is getting ever more difficult to classify Telecom as that. Nevertheless, do NZ right wing bloggers know better than the rest of the world?
Vote:February 29th, 2008 at 10:25 pm
applying a one size fits all solution to a uniquely kiwi problem is not the answer.
Vote:This all comes back to labour’s contempt for an individuals private property rights.
A fair and just solution would be to buy the company back, then they are free to piss away shareholder value.
February 29th, 2008 at 10:27 pm
BB:
Yeh but I only care about Eastbourne, Wgtn. How come Telecom doesn’t know it’s all about me?
Anthony:
Yes.
Vote:February 29th, 2008 at 10:51 pm
BB: I’m not asking for fibre. The problem isn’t the speed, its the absurb price of the download cap. Xtra prices are way higher than equivalent countries.
Vote:February 29th, 2008 at 11:30 pm
I support the direction of regulatory reform and as some have suggested, this should have happened from 1999, or better still back in the 1980′s.
What we probably need is cable in Auckland, as it is in Wellington and Christchurch – if TS cannot do this, then the government doing it there.
This would allow Telecom to focus on a quicker implementation of a broadband network for the rest of the country.
PS I have no stock ownership interest in this matter.
Vote:March 1st, 2008 at 1:56 am
He is not making any better calls with Telecom than he is in Health. Both are politically motivated and have a strong sameness about them.
The only difference really is the hypocrisy by people who applaud Telecom getting bashed by an anti-business government when it’s clear what the real agenda really is.
Vote:March 1st, 2008 at 9:00 am
Someone said TUANZ is doing this to support its members. Telecom is a corporate member of TUANZ while Vodafone is not.
The reason the govt has stepped in over Telecom is because Telecom’s actions were slowing the economic growth of the country for the sake of relatively few shareholders (Telecom boss Paul Reynolds said this week there are 35,000 NZ-based shareholders of Telecom stock – the rest live offshore). By continuing to fight against regulation, and by not investing the money it had in either maintenance or expansion of the network, New Zealand business suffered and still suffers. It reached the point where, despite Telecom reassurances that it would deliver on two easy to reach goals with regard to broadband (a certain number of customers using the product with a percentage of those from wholesale) it did not reach the wholesale goal. Telecom should have expected some kind of action from that point on. That it did not is a management failure that has (in the short term) cost the shareholders. The shareholders also should have seen it coming.
In the long run, I firmly believe this kind of separation will benefit both the country as a whole and Telecom shareholders because the network company will be able to invest in its product (the network) and deliver a return in line with that and the retail company will be able to invest in its product set (retail products) and compete on things like price and service instead of exclusivity.
Vote:March 1st, 2008 at 9:16 am
The wholesale goal was not met because the competing telco’s did not sign enough customers. This was despite telecom pumping tens of millions of dollars directly to it’s main competitor’s to help with advertising and implementation.
It is not regulation we are talking about it is the theft of individual wealth by a populist govt.
Show me how economic growth is being slowed.
They should buy telecom back in exactly the same way they would need to buy your house from you to build a new road through it.
What Labour are trying to do is make you pay to knock half your house down and then get you to pay for the part of the road that travels where your kitchen used to be. Without any form of recompense.
Oh, and I should probably have said this earlier.
Vote:I DO NOT WORK FOR TELECOM OR ANY COMPANY ASSOCIATED WITH TELECOM
I DO NOT OWN ANY STOCK IN TELECOM.
March 1st, 2008 at 9:36 am
“In the long run, I firmly believe this kind of separation will benefit both the country as a whole and Telecom shareholders because the network company will be able to invest in its product (the network) and deliver a return in line with that…..”
….and that I suspect is the key assumption, that there is a viable commercial return on offer for what should be one hell of a costly network and infrastructure refresh. Someone made the point earlier about the geographic picture, that in combination with sheer cost of infrastructure (in global terms) and the real value of the consumer spend here in NZ should make for interesting times….
I guess without that internal cross-subsidisation (?) of a one-Telecom model these things should be fairly transparent, very quickly….or has the price of that wholesale delivery been mandated somewhere?
Vote:March 1st, 2008 at 11:53 am
The point is Cunliffe’s edict reforming Telecom without compensation has robbed Telecom shareholders, including tens of thousands of New Zealand mums and dads, of well over a billion dollars.
These are the sort of antics Lenin and Trotsky were up to in Russia in 1917. Then as now, liberals cheered them on, and did so for decades.
New Zealand is a difficult country for wired telecommunications. While roughly the same size as the Korean Peninsula it is broken repeatedly across its long, narrow shape by rivers, mountains, and sea straits. The population apart from Auckland is light and widely spread. Even in Auckland a small proportion of people live in apartment blocks, which are easy to service with optical fibre. That is why there is such high broadband penetration in countries like Japan and Korea. Metropolises of apartment dwellers like Seoul, Tokyo, and Osaka are easily and very cheaply provided with broadband.
Another thing: the unsubstantiated claims about how broadband will boost economic growth enormously. Getting it to farmers by wireless will, but as has been pointed out, giving tens of thousands of sallow, unfit gamers in Auckland ever faster internet will add b-all to our economy.
Vote:March 1st, 2008 at 12:24 pm
Until this year our research institutes weren’t able to take part in international research because the astonishing time it would take to report back any findings (by broadband) was so long that nobody would partner with us.
Our film studios have had to turn down work because they cannot get data out of the country fast enough so that producers in (for example) Germany can watch the rushes at the end of shooting each day. It was cheaper and easier for one production house in Auckland to send a man with a bag of tapes on a plane to LA than it was to fire the data over the Southern Cross Cable.
I’m not talking about sallow unfit gamers, I’m talking about economic progress.
Vote:March 1st, 2008 at 1:20 pm
Audent, you are right. We are so far behind now that it is no longer about left and right. We lose billions of dollars a year due to the inability to handle data, and we also constrain the evolution of our economy. I think this is what the right needs to focus on – the potential boom for existing businesses, and the evolution of some internationally competitive sunrise industries.
And enough of catching up with the rest of the OECD, let’s top it! FTTH, wireless networks in municipal areas. I really do think people underestimate just how much having access to reliable, fast internet would revolutionise business in New Zealand, for both smaller and larger enterprise alike.
The Labour handling of this issue has been abysmal, and DPF, I know you are a big fan of Cunliffe’s rejection of this proposal, but IDG is estimating it will be 2009 before we see any benefits. This has been poorly overseen, and the only way to make it happen is to invest heavily in our own national fibre network.
Finally, I feel for those of you out there who are protective of property rights. But given Telecom’s behaviour – including their setting of wholesale prices a few cents below what Xtra would retail their plans for – it seems that while profit may legitimately be their main objective, they are perfectly happy to hog-tie the economy to get it.
EDIT: Jack5, just read your comment. Yes, yes it would, but unless the wireless networks have a backbone network to operate on that can handle the capacity (it’s already buggered beyond belief), then it would be pointless.
As for your comment about gamers, sending a set of annual accounts overseas to a parent company can take up to a day, assuming there is no interruptions to your connections. Does this really seem like the kind of infrastructure that would be inviting for major finance firms and large data-reliant industries? The government wants them, but they need to realise there is a long way to go.
Vote:March 1st, 2008 at 2:05 pm
The Telco Reform Act passed through Parliament 119-2. The status quo was unacceptable, and a serious economic threat IMO. Since then we have had business prices drop by up to 90%, speeds increase two to three fold and uptake of broadband increase so that we are slowly moving up the OECD ranks after years of stagnation or decline.
And for those who think this is an infringement of property rights, I suggest you look at what the testimony of the Telecom company secretary at the time Telecom was sold – it was made very clear at the time anti-competitive behaviour would lead to regulation.
Vote:March 1st, 2008 at 2:28 pm
From the consumer end though, the biggest problem are still the notion of data caps, which have basically stayed the same for the last few years. And the speed increase is pretty debatable, David – considering a number of customers experienced slower connections after the FS/FS plans were launched. There has been little increase in capacity on the network, but the impetus simply changed to getting as many people online as possible.
I know you are supremely knowledgeable about these things, and your opinion is most likely very well considered and reasoned, but I’d like to think I wasn’t pissing in the wind either. I applaud Labour for recognising the need (albeit one term too late), but my issues with the separation are as follows;
1) No follow-up with regards to the memo-leaks which wiped many thousands of dollars off the share portfolios of average investors, from a government who is desperate to get people out of the housing market and investing in the share markets instead;
2) Too much emphasis placed (in the past) in simply getting more subscribers, and less on preserving (let alone enhancing) the standard of broadband as a product in New Zealand;
3) The failure to consider alternatives to ADSL in the long-term, and finally
4) The fact we are still looking catch up, instead of to be revolutionaries and lead the way.
There must be a competitive model of providing internet access through a variety of mediums to create a fast, accessible network that all New Zealanders can access, and that can help link our economic drivers to the research institutes they need to work to get ahead.
Kudos to Labour for seeing the need, but we really need more ambition in this if we want to make the most of it. Think Big!
Vote:March 1st, 2008 at 3:11 pm
No-one argues that faster internet access to the world would be beneficial. However, I think Audent and Dog_eat_dog here give further examples of the exaggeration of these economic benefits. I concede Audent talks of economic progress rather than economic miracle, and that’s reasonable.
New Zealand’s film industry has received considerable tax benefits, yet some people argue that it will be a passing wonder because, apart from many talented New Zealanders, its main advantages are lower labour costs and a passing fascination with the country as a new backdrop, and that both of these advantages will fade. Let’s hope these cynics are wrong.
However, if broadband cost it business was it the link across the Pacific or access to that link or just the delay in internet2 or some such?
I find it hard to believe that our research institutes weren’t taking part in international research at all until faster internet became available. From what I read good work has proceeded apace. Faster internet may have helped but surely slower internet didn’t stop research.
I’m surprised to hear sending a set of accounts overseas can take a day. You can download half a dozen bulky annual reports plus a couple of prospectuses easily within an hour. Is some branching sending its raw data abroad for processing. That’s surprising given local accounting regulations and audit requirements.
And David Farrar’s comment about the sale of Telecom. It may have been stated and would have been assumed anyway that telecoms regulations would have to be obeyed after the privatisation, but it was never stated that the network might be ordered to unbundle, and without compensation. When British Telecom was privatised this was spelled out. Unbundling entails forcing the owner to relinquish some property rights. This goes well beyond requiring property owners to conform to regulations.
Vote:March 1st, 2008 at 3:31 pm
Jack5, while a published report is static figures, spreadsheets with embedded formulas, bundled with payroll and sales reports can quickly become large. If you are reporting to an overseas company, then you may have to prepare multiple sets of accounts to their tax standards, their company standards and then have your own approved, it can quickly becomes a very frustrating exercise.
When I talk of an economic revolution, I mean both ordinary New Zealanders and commercial enterprises alike would have so many more options than they do currently. Enterprises would be able to connect and interact with researchers on equal terms, and that’s what’s going to drive innovation. Plus it means that data intensive industry may see New Zealand as a viable base. I have no problem with the ideal of a knowledge economy, provided people acknowledge that it requires certain conditions, and the cheap, rapid and reliable transfer of information is one of them.
Vote:March 1st, 2008 at 5:23 pm
Reid: “The issue is, Telecom’s plan incented the workers in the wholesale and network divisions via the profits made by the retail division. Naturally this would lead to favourable deals being granted by Telecom’s wholesale and network divisions to the retail division even when a better alternative existed, which distorts the market. What’s hard about that?”
In fact Reid, the seperation rules require Telecom Chorus (the Network capability division) to offer it’s services at the same price-points to Telecom Wholesale as it would to say TelstraClear. And for Telecom Wholesale to offer the same price to retail gen-i (Telecom’s business division) as to other partners such as ihug or Orcon.
The seperation rules also provide strict engagement policies and chinese walls so that no one in Retail can engage with Wholesale differently than an external partner.
Vote:March 1st, 2008 at 10:11 pm
Sorry Dpf…You ain’t that bad….just other shit causing flare up.
J
But watch the lazy slide into socialism non the less..
Vote:March 1st, 2008 at 11:02 pm
When Telecom was sold back in 1990, there was the threat of regulation and the American buyers (knowing telecommunications was regulated in the US) did build that into their calculations when they came up with a price.
Lucky for them the regulation never came until much later and so the shareholders got a big windfall gain.
Vote:March 2nd, 2008 at 2:29 pm
Anthony talks of the threat of regulation when Telecom was privatised almost two decades ago.
ADSL broadband was not recognised as a commercial possibility at the time. Telecom got into ut when it stopped dead the development of the planned cable network in Auckland and made ADSL its key broadband strategy.
No-one at the time of privatisation — not the new owners, nor the Government, nor consumers, nor investors — could foresee that the old copper network would be so extensively revitalised by ADSL broadband.
The idea of competitors for broadband wanting to use Telecom property (exchanges, sites, towers, etc) was not foreseen by the New Zealand Government. It could not have been. Remember NZ was early in the countries privatising State assets.
The Government imposed unbundling on Telecom owners’ assets without stipulating in the original sale the possibility of this was part of the deal. New Zealand, like other democracies, has long compensated owners when ttheir property is taken for public purposes — roads, dams (as on the Clutha) etc. Telecom’s network should have been treated the same. Especially since in this case the property wasn’t taken for use by the State as in highways, but for use by competitors, some of them big multinationals, like Vodafone and Telstra.
Cunliffe on unbundling gave a foretaste of what he would do with health in Hawke’s Bay.
Vote: