Friday, May 20, 2011

New Zealand - The Telecoms Bill is facing a difficult passage requiring support from minor parties

[national business review] The controversial Telecommunications Amendment Bill is back in parliament for its final lap, setting the scene for a Telecom split and the final stages of Crown fibre contract negotiations.

Opponents hoping for major changes during the legislation's select committee phase will be disappointed.

For, as predicted by NBR, the finance and expenditure select committee reported the Telecommunications Amendment Bill returned to the house yesterday with its two most controversial provisions intact (see a PDF here).

National and the Maori Party (forming a majority on the committee) recommended the bill in its current form; Act, Labour and the Greens did not. Labour promised to repeal a key element - the so-called ten-year regulatory holiday - for Crown fibre companies - if elected.

Act: might as well flush $1.35 billion down the toilet
Act voted for the bill's first reading, but with MP Sir Roger Douglas expressing reservations. New leader Don Brash - like Sir Roger and a second Act MP, Heather Roy - has been an outspoken critic of government involvment in broadband. Now, as earlier flagged by NBR, it has become a strong opponent.

Sir Roger sharpened his rhetoric on this morning, telling RNZ that the government might as well "take one thousand five hundred million dollars and flush it down the toilet."

Act's coalition agreement with National requires it to support the government main election promises. However, Communications Minister Steven Joyce evaded the question of whether the telco bill fell under this category, offering only that National and Act are "working through the issues."

Maori Party support shored up
The bill is still set to pass its second and third readings regardless by dint of Maori Party support, recent shored up with the establishment of Nga Pu Waea, a new group that will meet bi-monthly with Telecom and Vodafone to ensure the $300 million rural broadband intiative (RBI) provides connectivity options for marae, addresses land access issues and explores Maori employment opportunities. Communications minister Steven Joyce said Nga Pu Waea could be extended to the $1.35 billion urban ultrafast broadband initiative.

Telecom shares (NZX: TEL) were up 1.35% to $2.335 in late trading on the NZX as the news was announced, contiinuing the company's recent bull run.

Two key elements intact
InternetNZ is not happy.

“The biggest problems with this legislation were the imposition of a regulatory holiday preventing the Commerce Commission from doing its job in the fibre environment and Telecom rather than Government leading the structural separation process,” InternetNZ chief executive Vikram Kumar said this afternoon.

“Neither of these major flaws have been fixed.

"Act, the Greens and Labour MPs on the committee have set these out as key problems they have with the bill, and we agree."

The Greens said the bill delivered Telecom a "legalised monopoly". Labour pledged to repeal elements of the legislation.

TelstraClear, which has been running TV and newspaper campaigns attacking what it calls, confusingly, "The Ultra Fast Broadband Bill" expressed disappointment but not surprise.

Federated Farmers, Consumer, most telcos bar Telecom oppose bill
“Given Minister Joyce’s unwavering faith in his own views and the politics of the whole situation, I am hardly surprised by the outcome,” chief executive Allan Freeth said. “But I am disappointed by the lack of respect shown by the Minister to the industry and consumer groups alike, and the inevitable cost and loss of choice for New Zealanders.” A coalition including Federated Farmers, Consumer, InternetNZ, Tuanz, Vodafone and 2degrees has opposed the bill.

“I had hoped this Government would have learned from recent history which has seen Telecom fined a record $12 million for anti-competitive behaviour, and mobile termination rates forced down only after action by the Commerce Commission," Dr Freeth said.

A few small changes
Mr Kumar acknowledged that the select committee had made minor tweaks.

“We do welcome small changes the Committee has made to the Bill. There are bigger penalties for breaches to LFC undertakings; a requirement for the Minister to consult the Commerce Commission for some decisions, and a useful narrowing of the broad power the minister would have had to spend funds from the Telecommunications Development Levy on almost anything," Mr Kumar said.

“Importantly, the Committee has fixed the definition of Equivalence that will apply to Local Fibre Companies from 2020. It is now clear that an equivalence of inputs standard is required."

Still, “Overall, this Bill favours Telecom’s shareholders over the wider New Zealand public. It seems that the market has made the same assessment, with Telecom’s share price jumping up," Mr Kumar said.

The legislation's impact

Among other measures, the bill sets out the regulatory frame work for the rural and urban broadband projects; allows the government to buy Telecom assets; and a spun-off Telecom network company to invest in local lines and fibre companies without the usual level of M&A scrutiny (crucially, such deals can only be entered into after the initial round of Crown fibre regional contracts are signed).

It also includes provision for a 10-year forbearance period for ultrafast broadband regional contract winners - a measure Mr Joyce has described as a pragmatic move to attract private co-investors. The minister has also argued that pricing is set by contracts with the government over the decade-long "regulator holiday" (it can go down, but not up). Mr Kumar, and others have worried it might not fall as fast as other countries.

As Act peels away, Crown fibre bill hinges on Maori Party support

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