NBR on Telco Reform

It is very rare for newspapers to do front-page editorials. It is also very rare for the National Business Review to praise the Clark Government. However today on the NBR front-page they start with:

“The Clark Government is to be applauded for its guts in taking a scalpel to Telecom’s market dominance in an effort to lift New Zealand up the OECD broadband rankings”

I think this shows how broad and wide-spread the support for these necessary changes are.

NBR goes onto say “This paper is traditionally vehemently opposed to all but the lightest government regulation. We are proudly pro-business and as a result suspicious of government intervention.” This sums me up also. Regulation is a last resort, but it is a resort.

In the last twelve months especially Telecom has made strategic blunders of massive, even epic, proportions. I even tried to warn them of this back in November. Their actions gave little choice but to change the rules because they gamed the current rules to such effect. Sure they are entitled to do so, but they knew the risks that strategy entailed and more than anyone are responsible for new rules being introduced.

I could tell horror stories from ISPs about how Telecom, as a supplier to them, has done everything possible to frustrate them. Russell Brown has blogged on how they have a ticketing system which means they can arrange broadband access to a house in two days for Xtra but two weeks or more for other ISPs. It’s not about prices as much as service.

As good as these reforms are, I still don’t think they will solve the long-term problem of attitudes. And sadly there has been little incentive for Telecom to behave differently. That is why I believe the ultimate step of a structural separation of their wholesale and retail business may turn out to be necessary.

Such separation would mean you can actually do away with most of this regulation, as the two separate Telecom companies will have greatly different incentives. Wholesale to grow the overall market and retail to compete aggressively in it.

Telecom board and management may want to ponder how they managed to arrange a situation where many of the most anti-regulation advocates in NZ (NBR, Gareth Morgan, Fran O’Sullivan, myself, many top businessmen) got persuaded that regulation wasn’t only defensible but very necessary. That takes some doing.

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