Government too soft on Telecom says Fels

By PETER GRIFFIN

New Zealand telephone and internet users have suffered from the Government's failure to tackle Telecom head-on, says the former chairman of Australian competition watchdog, who has called for the creation of a single transtasman regulator.

Allan Fels has just completed a 12-year stint as chairman of the Australian Consumer and Competition Commission. He is credited with transforming Australia's version of the Commerce Commission from toothless tiger to fire-breathing competition campaigner.

That approach meant he often locked horns with big business, especially with Telstra chief executive Ziggy Switkowski, who, over the years, has regularly traded blows with Fels through the media.

The acrimony perhaps springs from the fact that telecommunications is chief among sectors that have resisted competition.

Speaking at a Telecommunications Users Association summit in Wellington last week, Fels said Telstra and Telecom mirrored one another in their domination of most areas of telecommunications, except mobile, which was a relatively competitive market on both sides of the Tasman.

"Neither British Telecom nor any of the US telecoms companies have the same level of integration, market dominance, and, in the US case, national coverage, that Telstra or Telecom do," noted Fels. The two incumbents controlled the local copper telephone network and had the lion's share of the internet market in their respective markets.

"Perhaps Australians can take cold comfort in the fact that they seemingly enjoy a higher level of competition than New Zealand," he added.

Although Fels credited New Zealand's telecommunications commissioner, Douglas Webb, for the progress he had made in improving pricing and access conditions for Telecom's competitors, regulation had come extremely late.

The Government had not tackled Telecom's market dominance head-on with specific regulation until now, said Fels. Instead, New Zealand had opted for light-handed regulation and failed to force Telecom to wholesale its services to competitors, allowing it to maintain its stranglehold on the market.

As a result, Telecom continued to own 96 per cent of the lucrative fixed- line access market and 80 per cent of the telecoms market overall. Despite the introduction of local loop unbundling, extensive wholesaling from Telstra and the emergence of a large range of third-tier telcos, Telstra still owned 94 per cent of the wholesale fixed-line market, which earned it $6 billion a year.

Fels says Telstra was gifted with an ironclad monopoly until 1991 and breaking that down was always going to take a long time. He remains particularly concerned at Telstra's 50 per cent stake in pay TV operator Foxtel, which threatens to give Telstra control of the emerging interactive communications market.

Unashamedly outspoken, Fels said he felt it his duty over the years to keep the public informed of regulatory issues through the media as well-resourced companies such as Telstra mounted huge public-relations campaigns to retain the status quo.

"And there's a tendency to resolve matters behind closed doors with the issues in the hands of Governments and lobby groups. The regulator is the antidote to all that."

Fels' approach is in sharp contrast to that of the Commerce Commission, which rarely sparks controversy with its statements.

He acknowledges the differences but said the regulatory concerns surrounding the proposed Air New Zealand-Qantas deal showed that both regulators shared the same fundamental philosophies.

"The flavour of the reports were similar but the public statements from the ACCC were definitely more emphatic. We're always very direct and upfront with the media - that's not the approach everyone will take."

Fels said the co-operation between the Commerce Commission and its Australian counterpart on the Air New Zealand-Qantas deal showed the benefits a regional regulator could bring.

"A number of initial steps could be taken, including cross-membership, legislative provision for information-sharing," he said. "In the longer term, there is a serious case for uniform legislation and for the establishment of a single merged institution."

The Australian body's approach is likely to be toned down under new chairman Graeme Samuel, who plans to deal with Government and parliamentary committees "a little more privately and perhaps less through the media".

The summit also saw the heads of Telecom and TelstraClear trading differing views on regulation. Telecom chief executive Theresa Gattung described unbundling its copper network for competitors as an outdated and unsuccessful method. She criticised the Commerce Commission for the "low" cost of capital it had used in calculating the Kiwi Share.

Howard advocated unbundling and described Telecom's broadband product, Jetstream, as slow, inflexible and unreliable - the Model T Ford of internet access.

Telecommunications Users Association chief executive Ernie Newman gave the telecoms industry a patchy scorecard. New Zealand lagged by world standards because of low broadband take-up, lack of number portability and relatively high mobile to fixed call-charges.