Editiorial: MMP partner useful in fibre rule backdown

Fibre optic cable. Photo / Richard Robinson

Telecommunications Minister Steven Joyce gives credit to the Maori Party for the Government's backdown on the regulation of its ultra-fast broadband network.

Lucky is the governing party that has partners to right and left. The free rein the Government was going to give its chosen network operator for the first eight years was perhaps the only element of this dubious public investment the Act Party could have supported. But with Act's new leader now putting some distance between the parties, there was not much prospect of that.

The Maori Party has no such qualms about governments "picking winners", though it shared the concerns of many in the industry that the winner of the contract to build and operate the new fibre was to be free of price regulation until the end of 2019. This provision in the Telecommunications Amendment Bill was intended to give the operator time to find the fibre's most efficient price arrangements but, with Telecom likely to win the lion's share of the network, rivals have been alarmed.

Telecom's record under "light-handed regulation" of its existing network before 2006 has left no confidence that it would not use a monopoly position to deter competition and charge what it likes. Line networks are natural monopolies that cannot be left unregulated. In the absence of a statutory arbitrator, Telecom faced frequent court action from its rivals, which must have wasted fortunes at consumers' expense. Last month the High Court fined Telecom $12 million for anti-competitive wholesale pricing between 2001 and 2004.

This time, if Telecom is awarded the contract, the law will insist it separates its retail business from its network operation, ensuring access for all retail services on the same terms. But rivals TelstraClear, Vodafone and 2degrees, and the Telecommunications Users' Association, have not been satisfied. They have taken their case to the public as well as the minister while the bill has been in a select committee.

The solution agreed between Mr Joyce and the Maori Party will let the Commerce Commission oversee the network from the outset, but taxpayers will underwrite the contractor's costs if the commission concludes at any stage in the first eight years that prices should be below those contracted with the Government's agency Crown Fibre Holdings.

Mr Joyce sounds confident the guarantee will not be called on. "Pretty much everybody has been happy with the very competitive prices announced by Crown Fibre Holdings to date," he said. "If the Commerce Commission believes prices should go lower at any time over the build period, Government wears the risk, not consumers."

The assistance could be provided within the $1.35 billion Government funding of the project by permitting the contractor to defer repayments. The contract would relieve the public of this liability if the behaviour of the fibre operator caused the commission concern.

The arrangement looks to be satisfactory from all points of view, except that of Parliament's select committee, which also has been wrestling with the regulatory "holiday". But select committees are sadly accustomed to being bypassed in the Beehive.

The decision to underwrite the operators' regulatory risk will be written into the bill at a later stage. But before it is passed, Mr Joyce will have to announce who has won the contracts to lay fibre to the remaining 25 of 33 towns and cities to receive ultra-fast broadband.

His real worry has been not that an operator will be in a position to exploit keen demand, but quite the opposite: that not enough of those connected at public expense will make sufficient use of the network. No regulation can make it economic in the end.