Ernie Newman: Time to pull telecommunications out of Stone Age

Opinion

Who remembers television advertisements, nearly 20 years ago, showing Richard Prebble carving the Telecom Kiwi Share in a block of stone to prove to Kiwis that it could never be undone?

The Kiwi Share seemed a reassuring safeguard at the time for people who genuinely feared that privatisation would make phone calls unaffordable, or would remove phone services altogether from rural New Zealand. In reality the "block of stone" was polystyrene - but that's politicians for you!

But the Kiwi Share has come back to haunt us. It's working to the detriment of many New Zealanders and has been for many years. Seriously so.

Politicians, when new to government, vow to "fix" it. But when in opposition they use scare tactics to raise public fear and doubt, especially among vulnerable consumers. Instead of showing why it needs attention, they make it a political football. By doing so they perpetuate the misconception that it - and they - are somehow the protectors of the underprivileged.

So what exactly does the Kiwi Share do? It places several obligations on Telecom. Three are especially relevant.

First, it must continue serving rural areas. It is entitled to gather a levy from other phone companies to subsidise this. Second, it must offer a "free" local calling price plan. And third, nobody may hold more than 10 per cent of Telecom's shares without government approval, a provision that effectively closes out overseas ownership.

Each is fundamentally flawed in different ways. Each is arguably holding back the telecommunications market and therefore, the country.

The requirement that Telecom, and only Telecom, maintains landline services in rural areas is anachronistic. In 1988 the choice was a fixed line or nothing. Since then, we've got near-ubiquitous mobile and satellite alternatives.

Subsidising landlines when there is a cheaper, more reliable and better mobile service is dumb. Making Telecom's competitors subsidise Telecom to provide loss-making services which they themselves could provide on a commercially viable basis is even more so. To a company like Vodafone that writes a cheque every day to Telecom for around $60,000 to subsidise Telecom's allegedly loss-making services that Vodafone could service at a profit, it must look absurdly and expensively idiotic.

Imagine the outcry if JetStar, which started on our domestic main trunk routes this week, had to pay a subsidy to Air New Zealand to subsidise some of the latter's services despite it having a competing service on the same route.

Then there's the requirement that Telecom provides "free" local calls. Of course these are not "free" - no way! They calculate and value the local calls they think we'd make on average, apply a profit margin, and add the result to the monthly line rental.

That's why most Kiwis pay $46.35 a month for our phone line compared to around $25 in Australia or $28 in the UK. Sure, the other countries apply an additional modest charge per call depending on the length and time of day, but you'd need to be a seriously compulsive talker to account for the difference.

Remember, these days we all make a lot of our calls on mobile, and few of us still use dial-up internet, so our landline use is declining.

What would happen if the Government withdrew this very intrusive intervention into Telecom's pricing structure and let the market work it out? Would most New Zealanders be better off?

I strongly suspect so, although I can't say so categorically in every case. That's why a review is important. That way we'll have the information on which to judge.

The third requirement is that nobody owns more than 10 per cent of the company. Sure, Kiwis have a wide range of views on foreign ownership, and many of us are uneasy about the departure of banks, breweries and others to foreign owners. But to single out one company seems strange.

It seemed even more so when the NZX came out this week to argue that a reason for maintaining Telecom in New Zealand hands was to provide critical mass for the stock market and the broking industry.

I know how much of a premium I'm willing to pay on my phone bill to support a job maintenance plan for sharebrokers and lawyers. Do you?

That the Kiwi Share is broken is beyond any doubt. A sensible review is essential.

Politicians would do a service by letting the review run its course and engaging with it intelligently. Seeking political points by creating anxiety and fear among vulnerable people is not in the interest of the community. Kiwis deserve better.

Ernie Newman is chief executive of TUANZ, Telecommunications Users Association of NZ, a lobby group of major telecommunications users.