Consumer loser in phone monopoly

By CHIRS BARTON

A report provided to the Telecommunications Inquiry puts further pressure on the Government to stand up for consumers harmed by Telecom's monopoly dominance of the market.

The independent report examines the effects of a decade of "light-handed, hands-off" regulation of telecommunications and finds "the New Zealand consumer has not received the benefits that a truly competitive market would be expected to deliver."

Backing the claim are figures from the Australian Productivity Commission on telecommunications prices, showing both business and residential users in New Zealand are paying much more than nearly all of the countries surveyed.

New Zealand fares worst in business prices for local phone services that are 111 per cent higher than the top-performing country, Finland, and 120 per cent higher for data services. For local residential calls, New Zealand ranks 8th out of 10 - 42 per cent higher than Finland - and for residential ISDN (data and voice) calls it is last on the list and a whopping 226 per cent more expensive than Finland.

The report, commissioned by Clear Communications and conducted by Outcome, points out that New Zealand is the only country in the world which has relied solely on general competition law to protect the consumer.

Outcome's Paul Hewlett, one of the report's authors, said another tenet of the light-handed regime was that consumers would band together to reject high prices.

In the absence of choice on many local services, consumers had looked to the Government to exercise "countervailing power" on their behalf. But the policy dogma of the time prevented the Crown from intervening.

Outcome claims Telecom's dominant 75 per cent market share has been to the detriment of growth in the telecommunications market, which has slowed from 10 per cent in 1998 to about 1 per cent last year. By comparison, growth in Australia last year was around 10 per cent, and between 7 and 8 per cent globally.

The report also revisits the size of Telecom's monopoly profits derived from its stranglehold on local services and estimated to be worth $382 million in the 1998 Todd study.

A subsequent study by international consultants Ovum suggested the Todd report overstated some costs. Ironically, according to Outcome a rerun of the figures using Ovum's suggested inputs shows a higher monopoly profit figure of $450 million.

To many, including the policy-makers within the Treasury and the Ministry of Commerce, the figure will come as no surprise. In a Treasury report in August 1995, obtained under the Official Information Act and reported by the Business Herald in July 1997, an official estimated "the monopoly element of the profits earned by Telecom is about $500 million."

In the same report, which looked at whether to delay "more stringent regulation" of the telecommunications market, a Ministry of Commerce official argued the "deadweight losses" would be more like $50 to $100 million - adding that even this size warranted "some Government attention."

Treasury rejected intervention, favouring a wait-and-see approach.

But as Outcome points out, "the failures of the past decade demonstrate that there is no reason to believe that effective competition in telecommunications will occur by just doing nothing."

In response, Telecom said the report offered no new insight into regulatory issues.

"It doesn't take us any way forward," said Bruce Parkes, general manager of Government and industry relations.

"It is quite disappointing that a company the size of British Telecom [Clear's owner] hasn't been able to progress this issue."

Clear was also quoting selectively from statistics from the Australian Productivity Commission, Mr Parkes said. The report, released last December, had "painted a good picture of New Zealand" based on baskets of services rather than the single services Clear had picked out.

A basket of residential services, for example, included charges for access, local calls, national and international tolls, internet and fixed-line to mobile calls.

On such a basis, New Zealand was the third cheapest of the 11 countries surveyed.