The New Zealand Government has recently announced that it has a plan to further regulate telecommunications, especially to un-bundle the “local loop” and to further regulate DSL. Whether New Zealand should un-bundle the local loop has been an object of contention for a while. When I was working at the Commerce Commission three years ago it was hotly debated, and the Telecommunications Commissioner had given advice against doing it. As far as I know, his position has not changed in the last few years.
Unbundling the telecommunications local loop is an example of what public development of infrastructure is often about: expropriation. Even in countries such as New Zealand and the US where property rights are well-defined and enforced, governments don’t stop because local loop unbundling violates property rights. I see two main reasons behind the move in the world to un-bundle the local loop:
- It is based on the idea that competition is about free access or shared access. The local loop is often in the hands of those who first built it; this can’t be because it creates a de facto monopoly.
- Those who can’t directly compete with the incumbent ask the government to “establish competition.”
The New Zealand telecommunications market has many actors who are very pleased to see the incumbent (Telecom NZ) being forced to “share” its assets. Ironically, when Telecom NZ was privatized, commentators at the time said that the price the government sold the company for was far too high and thus the investors would find it hard to make money. But, Telecom NZ became very successful, and its market capitalization rose. As a result, the ownership of the copper network and the local loop has become an issue: how can Telecom NZ, which makes “tons” of money, own it in all impunity? (But remember, it was supposed to have been sold for too high a price.)
As any student of Austrian economics knows, competition is a discovery process, not a state of affairs. While it is true that Telecom NZ is today the sole owner of the local loop, it is also true that many new technologies allow companies to offer other services by-passing the local loop (e.g. mobile phone technology). Moreover, and more importantly, it is hard to see how anyone can “establish” competition by violating property rights. This should be a non-starter.
In order to enforce its new regulation, the NZ government will strengthen the Commerce Commission regulatory accounts. The result of all this is that New Zealand is slowly but surely moving from a light-handed regulatory regime to a more heavy-handed one where the government plays a bigger role. Will New Zealanders be better off? The answer is NO. In all likelihood, the goal of the regulation will never be achieved and instead, a few wealthy suburbs will be favored and low-income rural areas will pay higher prices. (For instance, see here a study by Jerry Ellig and Nicholas Taylor on the impact of LLU in the US.)
As I argued in a recent paper of mine (Why Have Kiwis Not Become Tigers?), while New Zealand presents one of the best environment for doing business in the world (according to the World Bank Doing Business index), it is also sliding back, away from where it was a few years ago. Public Choice forces and stupid government thinking are slowly eroding what has been one of the greatest reform processes the world has seen in recent times.
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