Wednesday, February 22, 2006

Telecommunications and Russell Brown

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I have refrained from writing on telecommunications, although I have a background in telecommunications policy until now – and it is partly in response to the inaccuracies in Russell Brown’s column cited by David Farrar. Russell wrote a lot, and this post is in response to some of what he said which is clearly wrong.
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Paul Hewlitt’s article he cites is largely quite good although out of date (Vodafone does make a profit in New Zealand), fails to criticise major reports that are full of errors, such as the Todd report commissioned by Clear Communications and the Australian Productivity Commission report (both using out of date data, besides why would Clear produce an objective report?) and makes claims about Ministry of Commerce analysis which are false such as "The Ministry has no real view about these critical issues, despite 'presiding over' ten years of a deregulated marketplace, because it has no objective information, having done no work on behalf of the Crown or taxpayer to understand what has been taking place in the market. " He might want to do an OIA request on this.
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Russell criticises the regulatory regime, which relied on the Commerce Act and threat of regulatory intervention by saying “It is difficult now to credit the stupidity of those who devised the policy.” Really Russell? New Zealand was the first country in the world to fully open up its telecommunications market to competitive entry – the US still had protected infrastructure monopolies for local calls, and the UK had a regulated duopoly. Those were better models? At the time, it made perfect sense to treat telecommunications like every other industry, and use the agreement with Telecom to provide fair and reasonable interconnection as the benchmark, and the Kiwishare obligations to protect a certain level of local service. The Internet, as far as New Zealand was concerned, did not exist.
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"After Telecom was sold to Ameritech and Bell Atlantic (themselves, ironically the product of the greatest regulatory intervention in telecommunications history - the forcible break-up of AT&T in 1982) for $4.25 billion (the money was prudently used to retire external debt) in 1990". First, the break up of AT&T was by court order, not an action by a regulator (although it is in response to anti-trust law which was generic), secondly Telecom’s sale money was only partly used to retire external debt, the remainder was used to finance Labour government social spending in the ill-fated 1990 budget.
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“It wasn't all bad: Clear Communications entered the market, negotiated an interconnection agreement for distance calling and set toll rates on a steep slide.” Well when Clear’s entered the market, its toll rates were the same as Telecom’s for residential customers. Clear made it "Clear" it entered the NZ market to compete on service NOT price. It wasn’t until 1995/1996 when Telstra, Worldxchange and Sprint entered the market that Telecom was the first to dramatically reduce national toll calls with $5 weekends- Clear followed. It took the extra players to encourage competition, and Telecom was the price leader. Note also that on international routes Telecom faced competitors with significant overseas partners able to undercut it on key routes, BT and MCI owned Clear in those days, but Telecom introduced capped international calls to Australia, UK and the US - not Clear!
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Meanwhile, other nations began to embark on a different path. When they broke up their public monopolies, they either completely separated the wholesale and retail elements of those networks, or foreshadowed local loop unbundling, Nobody broke up their public monopolies, they tended to be corporatised, privatised and opened up to competition. Most foreshadowed local loop unbundling, but it was a new concept in 1996. Nobody completely separated wholesale and retail! Australia had a regulated duopoly until 1996 and most of the European Union did not open its markets until 1999, and the incumbents were not split.
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The various permutations of Saturn, Clear and Telstra installed cable in parts of Wellington and Christchurch but ran out of money. Telstra ran out of money? The majority Australian federal government owned behemoth? Give me a break Russell – it simply changed its business model and when government policy changed in 1990, the incentives changed. It also faced enormous RMA issues in Auckland as NIMBYism meant people didn’t want overhead wires for a competing network. Once Auckland became too hard it abandoned Hamilton, Tauranga and Dunedin.
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Russell also talks about how great the British unbundling experience is. Well this needs some closer examination. I used to live in Chelsea, hardly remote and somewhere you’d think you could get high speed broadband via BT unbundled line, but no – 512kb/s was what was available from my exchange. I could have gone to NTL, which has a competing network and got 2Mb/s of course, but ended up moving anyway. Not that this is much evidence, but it is as valid as ones of people Russell DOES know.
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The current price range for broadband in the UK is between £13 and £25 a month, costing more if you don’t want to be hooked into a 12 month contract – so this is about NZ$35 to NZ$60, cheaper than NZ when you consider that plans tend to have no download cap. Yes, the UK has cheaper, faster broadband, but in main cities there is infrastructure competition from cable operators too. The main cable TV providers NTL and Telewest are about to merge making them a more formidable force in broadband.
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"The British regulator's report had another line of considerable interest: "There are no Disputes in progress at the present time." In a market where there is "a dispute in progress" most of the time that sounds pretty damn good. " Not the regulator Russell, the Adjudicator. The regulator is Ofcom, and its report is here, there are plenty of disputes.
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“Woosh Wireless may have sorted out its technical issues by now, but its residential service offerings are abysmal. BCL shows no sign of moving into the residential market and, even with WiMax looming, I'm still waiting for someone to show me that wireless will be anything more than a niche” Well, BCL wont, but people thought DSL was a niche in the mid 90s, because Hybrid Fibre Coax was the way of the future – and were proven wrong. Unbundling will help to kill off wireless as a competitive option, and the uncertainty around the regulatory regime wont be helping wireless.
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Yes, the number of New Zealand broadband connections grew nearly 70% between Q3 2004 and Q4 2005, but that's still less than Thailand, India, China, Pakistan and Australia, in the Asia-Pacific region alone. Oh please Russell, if National quoted all the developing countries and said how appalling our GDP growth rates are compared to them you know what you would say. Australia IS legitimate, but it is also working off of a similarly low base, with unbundling.
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"Full LLU would also, of course, immediately introduce something that the nearly 20 years since corporatisation has conspicuously failed to deliver: nationwide competition on residential voice calling services. " What nonsense, there has been nationwide competition on national and international calls for over ten years. For local calls there is Telstra Clear reselling Telecom services, and Vodafone provides a competing voice network (not as cheap, but it can be used without line rental).
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McLeod's column hails the progress of Vodafone in our "competitive" mobile calling sector, without acknowledging that the benefits of that competition have failed to flow through to the consumer: our mobile termination rates (especially when calling from fixed lines) are the highest in the OECD. Oh the consumers have not benefited from a second cellphone operator? Would we have prepaid phones and text messaging if it were not for Vodafone? There is plenty of opportunity to have a third network – the spectrum is held now, and if Bellsouth/Vodafone can do it, so can Telstra Clear or Orange or another major international operator – might help if the RMA wasn’t such a barrier though. Other countries have additional networks, and that is reflected in price.
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Finally specious phrases like “Let's put it another way: would we want our roads run like our telecommunications? You won't get many backers for that motion, Rob.” Why is this a bad idea? Do you find it hard to get a phone call through at peak times Russell? Why is it that new technologies get implemented roughly according to demand, but that money for roads is always short?
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So things are not as clear as he makes out. I will blog later on what I think should be done about New Zealand telecommunications, after reading the report from InternetNZ. It comes down to being more creative than simply the government taking away property rights, but about those who want a better deal negotiating it and using the power they have. After all, Telstra is hardly a minnow in the lake.
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4 comments:

Ruth said...

Telstra has always crushed its competitors by govt regulation. They will be looking to regulate Vodafone next.

This whole thing is akin to saying "you people who drive Toyotas will be given a subsidy to upgrade to BMW's"

I find it amazing how normally right minded people have been sucked in by Telstra and a Joe Blow led campaign for a free lunch.

None of these rats and mice telcos with near zero market share, or foreign owned companies are willing to spend any money and are just campaigning for the breakup of Telecom.

Anonymous said...

dear liberty scott, do you have a day job ? you seem to have a lot of time on your hands...

libertyscott said...

yes anonymous, I run a small corner of the world and enjoy spending time with an Australian.

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