 |
|
20 February 2006 The Itch to Regulate Broadband Last week saw two developments
in the broadband debate. First, Telecom announced substantial
price reductions for broadband services at faster speeds. No doubt
the moves were driven by some combination of technological advances,
competition, customer pressures and regulatory threats. Second, the government engaged
in some heavy breathing about further regulation, repeating claims
that New Zealand is lagging behind other countries in broadband
penetration. Many urban myths surround the broadband
debate. The reality is that almost 100%
of homes and businesses in New Zealand can access broadband capability.
New Zealand compares favourably with the OECD average on this indicator. The issue might therefore be one
of affordability. The current level of penetration (about 20% of
households) puts New Zealand 22nd in the OECD, as the prime minister
noted in parliament. This is about the same as New Zealand's ranking
for income per capita, and broadband uptake is positively correlated
internationally with incomes. This suggests one remedy for the
alleged problem is a more effective economic growth strategy to
raise average incomes - on present policies, New Zealand is not
on track to move up the OECD ladder. In addition, the price reductions
(including a dollar a day entry plan) and better services announced
by Telecom will improve affordability. The new prices will be below
average prices in other OECD countries. Further improvements in
speed are in the pipeline with the rollout of the next generation
of ADSL. Nevertheless, as the government's
statements indicate, there is always an itch to 'hasten history'.
Customers always want lower prices and competitors are prone to
ask for the helping hand of regulation. Regulation could mean local loop
unbundling, price controls or other forms of intervention. As has happened so often in the
telecommunications industry, that idea could soon be irrelevant.
Telephone exchanges may become a thing of the past with the next
generation network (NGN) which uses internet protocol. Critics argue that most OECD countries
have some form of mandated unbundling, but that proves very little.
Most OECD countries have agricultural subsidies too. Governments
routinely intervene at the behest of vested interests, not the general
public interest. Overseas, unbundling has been fraught
with difficulties. In Britain, where local loop unbundling has been
in place for over 5 years, fewer than 300,000 lines have been unbundled.
In New Zealand terms that amounts to around 20,000 lines, about
the number of broadband connections Telecom sells every 6 weeks.
In Australia the number of unbundled loops is also low and the industry
is embroiled in major legal and policy debates on the issue. Dynamic competition based on new
technology and high rates of investment are far more important for
the future of telecommunications than 'parasitical' competition
involving forced access to incumbents' networks. Where technological
change is bowling along, over-regulation inhibits investment and
the uptake of new technologies. To encourage investment, property
rights should be respected and not altered without overcoming a
substantial burden of proof and addressing the issue of compensation.
Infrastructure investors won't invest if the environment is hostile
and uncertain. Would-be entrants should expect to negotiate access
to facilities on commercial terms, not be given a 'free ride'. Marketplace competition seldom
operates perfectly, but just because a fish can't fly doesn't mean
a rhinoceros can do better. The heavy hand of regulation is often
far worse. Greater intervention by the government
in electricity has led to the current unholy mess in that industry.
Do we want telecommunications to go the way of state-controlled
electricity and roads? Before contemplating new regulation
of any industry, it is always wise to look at current regulations
that may be impeding its performance. A case in point in telecommunications
is the Kiwi Share or Telecommunications Service Obligation, which
has long outlived its usefulness. Among its many perverse effects
is that it artificially subsidises dial-up internet, to the detriment
of broadband uptake. ISPs and others clamouring for
broadband regulation should be careful what they wish for, because
they might get it. Regulation begets more regulation, as the electricity
situation demonstrates. Companies like Vodafone that have concentrated
on competing in the marketplace rather than lobbying for government
favours have done best. New Zealand has benefited hugely
by moving from a state-owned telecommunications monopoly to a competitive
private industry with relatively lighthanded regulation. We should
keep it that way. Rob McLeod is the chairman of the New Zealand Business Roundtable and a director of Telecom Corporation of NZ. |