Chris Barton: Commissioner should see the bigger picture

Twenty months have passed since our new Telecommunications Act came into effect. This was the act that was supposed to end more than a decade of light-handed regulation that propped up the Telecom telephone line monopoly.

At last New Zealand would begin to see what a truly competitive telecommunications market was like. Consumers would have choice, prices would come down and investment in new technologies and niche markets would flourish.

So far, we've got none of the above. If the act was working, by now you would expect to see some small benefit flowing the consumer's way. All I've noticed is that my monthly line rental has gone up to $39.30 and my Call Minder mailbox costs an outrageous $8.94 a month.

Telecommunications Commissioner Douglas Webb appeared to start well enough, ruling in November that the short hop interconnection rate to Telecom's network should be 1.13c per minute.

This was about half what Telecom had been charging and initially had small carriers jumping for joy. But the happiness was short lived because Telecom nearly doubled what it charged carriers for the long-hop section of interconnected calls.

So what the commissioner gave to competitors with one hand, Telecom, using its market dominance, immediately took back.

Most thought this patently insane - and further evidence of Telecom's unbridled monopoly power. How could long-hop prices change from 4.5c per minute to 7c per minute? How could Telecom justify such a move - because it was miffed by the commission's ruling?

When one of the small carriers, CallPlus, applied to the commission to get these long-hop prices charged more fairly, most expected common sense to prevail. But in his draft ruling in July, Webb stunned everyone by saying, no, he did not think the national transport of a call between local calling areas such as Auckland or New Plymouth was something he should regulate.

The ruling is an example of the commissioner being so engrossed in the detail that he has forgotten to look up at the bigger picture. Webb argues transport of calls between centres can be offered by a third party - which is true in some cases, but not all. More importantly, he fails to notice prices have been increased, not just by Telecom but also by the third parties such as TelstraClear.

What more evidence is needed to show competition is not at work - and quite possibly that some tacit complicity by those parties is keeping prices artificially high?

Webb doesn't bother to analyse why these prices have increased so markedly, nor does he conduct, as he did with the short hop calls, an analysis of what is a reasonable price for these services.

Instead, and with questionable logic, he rules the long-hop segment of calls doesn't fit in the scope of the services he is required to designate.

Webb is forgetting the fundamental principle of the act - "to promote competition in telecommunications markets for the long-term benefit of end users of telecommunications services."

Had he designated and set prices for the long hop portion of calls, small carriers would have had certainty about their costs for providing toll calls - and been able to provide them more cheaply to all New Zealanders.

There's no doubt the small carriers - WorldxChange, Compass and CallPlus - even with the exorbitant rates Telecom had been charging for interconnect, have brought better toll prices to New Zealand. But it's also clear prices could get better still if competition was given a chance to drive out inefficiencies from the Telecom monopoly.

If Webb can't get it right with toll calls, you have to wonder what hope there is for the other areas where Telecom has a stranglehold - the inflated 71c per minute we pay for land to mobile calls, and the lack of progress on the right to take your phone number with you (number portability) when switching carriers. Not to mention wholesaling of residential services - designated when the act was passed, but still not in sight.

Webb probably also isn't noticing the chilling effect of his rulings on investment by the small carriers. None have put in any significant infrastructure in the past year and CallPlus has signalled all its future investment will go to Australia where competition is given the air it needs to flourish. Ask the small carriers what they're doing with any profit they're making and they'll tell you they're socking it away to pay Telecom for the telecommunications service obligation (TSO). That's another botch up that effectively taxes competitors on their success and ultimately stifles investment.

The more revenue the competitors make the more they end up paying as their share of the $73.45 million a year, Webb says Telecom is owed for providing basic telecommunication services to all.

The unsubstantiated rumour doing the industry rounds says Telecom's powerful Government lobby team has brought in psychologists to analyse Webb and his advisers. Too far fetched to be true. But if personality traits were a factor, a psychologist might observe Webb and his staff were obsessively meticulous, sticklers for detail and slightly compulsive about following procedure.

All good qualities for overseeing the letter of the law, but not so good for its spirit and possibly a weakness that can be exploited. Flood them with detail, and bog them down in procedure so they'll never notice the end game. Perhaps Webb and his staff should look up from their books more often.

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