Telco watchdog Douglas Webb bares his teeth

Douglas Webb says Telecom needs to change its attitude, otherwise calls to split its wholesale and retail businesses will grow. Picture / Mark Mitchell

When the Government appointed Douglas Webb as Telecoms Commissioner three years ago, many industry watchers expected almost continuous conflict between Webb and the dominant industry company, Telecom.

But despite inevitable skirmishes, the thoughtful, mild-mannered Webb, and perhaps a more pragmatic than expected incumbent telco, have largely avoided full-scale war.

But there are indications things may be changing.

In a June 27 speech at a telecoms conference, Webb launched a stinging attack on Telecom. The title alone raised eyebrows: "Telecom attitude change would benefit consumers and Telecom".

The speech led one seasoned observer to suggest Webb had moved from a carrot to stick approach.

Webb, a lawyer noted as a stickler for process, seemed to have finally had enough. His language, the observer suggested, was starting to sound like that used by flamboyant, outspoken former Australian Competition and Consumer Commission chairman Allan Fels.

But Webb rejects suggestions his speech portrayed a new, different or tougher approach. The speech came out of a "real sense of concern" about the way telecoms competition is moving, or rather is not moving.

Telecom, as owner of the national landline network, did no more than the regulator forced it to do to boost competition, Webb says. This was a "luxury" the economy could not afford.

Telecom needed to make a "quantum" change in attitude or calls to split its wholesale and retail businesses would inevitably mount. Telecom had an opportunity to advance its business by taking a different set of business decisions.

Much of Webb's concern stems from the Government's aim to lift New Zealand's ranking for broadband, or high-speed internet, uptake to the top half of the OECD by 2007 and top quarter by 2010. At present we are 22nd out of 30 countries.

The OECD says broadband will become increasingly important with the development of electronic commerce and internet delivery of public health and education services.

To meet the Government's "aggressive" goals we need more distribution channels and strong pricing pressure, Webb argues.

On the subject of Telecom's wholesale and retail arms, Webb has a close eye on events overseas. Last month British Telecom agreed with regulator Ofcom to set up a separate business unit to support all telecoms service providers' retail activities, not just BT's.

Across the Tasman the ACCC enforces an accounting separation regime on Telstra designed to address competition concerns between Telstra's wholesale and retail services.

Asked if a regulated separation of Telecom's wholesale and retail businesses was possible, Webb is coy.

"The message is that unless something changes, I think there are going to be calls for that."

But advocating the separation of a major public company like Telecom would be a significant step and Webb himself was not actually doing so.

"My point is this debate is coming and there may be an opportunity to head it off. But that requires a significant change in attitude and approach [from Telecom]. Policymakers might have to look at it."

Not surprisingly, none of this goes down too well at Telecom HQ. For Telecom's government and industry relations manager, Bruce Parkes, it is "quite confusing" for Webb to say the company should do more than he requires it to do.

Especially, Parkes suggested, since Webb's message a year ago was: "We've made our decisions on access to Telecom's infrastructure, now get on with it." Telecom needs consistency from the regulator if it is to make investment decisions, Parkes added.

Telecom's wholesale business had a sense of "accelerating momentum" with broadband reaching a "tipping point", penetrating 15 per cent of households. The company is selling broadband "like hotcakes". Its biggest problem is meeting demand.

Telecom aims to have 250,000 broadband customers by year's end, up from 169,937 at March 31. Of these, one-third, or 83,000, are supposed to come from wholesale business.

Parkes admits the wholesale target is unlikely to be met. TelstraClear, the number two internet service provider behind Telecom's Xtra with 280,000 customers, is not a Telecom broadband customer.

TelstraClear argues it is not commercially viable to be one. However, Parkes says Telecom's forecasts had anticipated TelstraClear's custom.

Meanwhile, on the same day as Webb's speech, Communications Minister David Cunliffe said Telecom's wholesaling commitment was important and "a response" would follow if it was not met.

Webb ought to have known what to expect when he signed on as Telecoms Commissioner in 2002. As a partner at law firm Rudd Watts & Stone in Wellington between 1986 and 1991, he negotiated an interconnection agreement on behalf of New Zealand Rail with Telecom. He also represented a consortium that set up Clear Communications and was part of a Clear team that negotiated the first interconnection deal between Clear and Telecom.

Webb left a role as managing counsel and deputy to the World Bank's legal department vice-president in Washington to come home. While at the bank, he advised on telecoms reform in several countries.

He says results achieved during his three years as commissioner, such as TelstraClear launching competition with Telecom in the national residential phone market, had been good for consumers.

He does not expect any changes to his role should a National-led government be formed after this year's election. What Webb can do as commissioner is "pretty tightly defined" by legislation, but he is not asking for more powers.

"I think this industry is mature enough to recognise what is good for New Zealand, what it needs to do".

Webb has not decided whether he wants to stay on, if the Government wants him, after his five-year term ends in 2007.

Meanwhile, the wholesaling spat with Telecom begs the questions as to whether Webb now regrets a key decision made in December 2003 not to force Telecom to allow rivals like TelstraClear and Slingshot to access its local loop, or copper phone lines, into homes and businesses.

"No, I don't regret that," he says. This is despite the OECD noting last week that implementing unbundling had been an important regulatory initiative "facilitating" broadband development in many countries.

The Commerce Commission looked at countries where full unbundling had been enforced on incumbents and saw it had taken many years. So instead Webb recommended, and the Government implemented, access for Telecom's rivals to a so-called bitstream, wholesale broadband service.

This product now runs on about 16,000 lines, a "significant" proportion of the 170,000 broadband customers on Telecom's network, Webb maintains.

"I don't think we would have got anywhere near that number if we'd been relying on full unbundling."

Furthermore, Telecom got a "pass" on unbundling partly to preserve its incentive to invest in an upgrade to internet protocol technology, which combines voice and data on the same line. But, Webb notes, two years on there is no expectation of "when or whether" this IP rollout will happen.

"I don't regret that, but there needs to be performance," he says. "We need to see higher speed options available to broadband users."

Douglas Webb

* Age 58.

Education.

* Bachelor of Laws and Master of Laws with Honours, Victoria University.

Career

* 1969-1982 Watts and Patterson law firm.

* Office of the general counsel, Asian Development Bank, Manila, 1982-1986.

* Commercial partner, Rudd Watts & Stone, 1986-1991.

* World Bank legal department, 1991-2002.