Editorial: Big cost in minister's naive aside

Opinion

If the Government reflects on events of last week it might care to think more deeply about the comment by its Communications Minister, David Cunliffe, which wiped another $157 million from Telecom's share capitalisation. Mr Cunliffe observed quite innocently to a business news agency that Telecom might have to reduce its dividends to fund increased investment now that the Government has decided to force open its line network to competitors. His gaffe was more telling than even the Prime Minister has acknowledged. It suggests the Government has not realised the full implications of its new regulatory itch.

When governments succumb to the urge to interfere directly in company decisions they ought to place themselves under new discipline. They become not just akin to company decision-makers who possess inside knowledge of pending events that will move the company's shares, they are in a position to know even more than the company's managers about what may be in store.

If anybody outside the Cabinet had made Mr Cunliffe's comment last week, it would have been an utterly unremarkable observation. Of course Telecom may have to reduce its dividends if it wants to increase its investment. But when a line network ceases to be a monopoly, the owners have less incentive to increase their investment in it. That is the context in which the market interpreted the minister's comment. One regulatory move commonly requires another and it is conceivable the forcible opening of Telecom's network will result in some edict regarding re-investment of profits. The sharemarket will be alert to any hint of a directive and ministers must be careful what they say.

The Prime Minister received this lesson during the Government's first foray into a listed company, the rescue of Air New Zealand five years ago. But that was a business on the ropes, unlike Telecom. And the intervention was reluctant and diffident beside the assault on Telecom this month. Having taken this step, the Government sounds gung-ho for more. In last week's Budget the Finance Minister confirmed the intention to impose an accounting separation of the company's lines and said the parliamentary committee dealing with the unbundling legislation would consider "other forms of structural separation" of Telecom's business elements.

On Friday Michael Cullen was talking as determinedly about the electricity industry, threatening to overrule the Government's own appointed regulator, the Electricity Commission, and allow Transpower to proceed with the unpopular giant pylons that would increase the supply to Auckland. The effect of interference in the pylon issue would be to uphold a state-owned company's business decision against a draft ruling of the regulator. Nevertheless, it underlines a determination to impose political considerations on the issue.

Today, as foreshadowed in the Budget, the Commerce Minister is to announce a review of business regulation. Dr Cullen said the exercise would "get down to the level of business owners to assess the real issues constraining their development and frustrating their day-to-day operations". He also cast the review as a signal to international investors that "New Zealand is a great place to do business and to invest in". If that is an attempt to offset the damage to Telecom investors, it may need to be.

But when the ministers "get down" to their level, business owners might remind them that regulatory power can be as damaging in reserve as in practice, and that once a government has proven itself willing to damage a listed company it must be doubly careful to control its tongue.