First, it traces the development of Australia and New Zealand's fiber investment policies in the context of international competition policy. In particular, the Telecommunications Act of 2006 was heavily influenced by the OECD's adoption of European policy prescriptions (Howell, 2006).
Access Regulation and Diminished Incentives for Fibre Investment
At the heart of the policies is the emergence of optical technologies as the frontier of fixed-line data transmission. However, this would require a careful assessment of the wider benefits and drawbacks of such a response.
The Timing of Fibre Investment
South Korea is indeed in the bottom quartile of the OECD when it comes to statistics such as the number of secure servers and domain name registrations per capita, which are widely believed to be related to the high level of internet use for commercial activities68. While this has led to widespread adoption of FTTH among those purchasing fixed broadband connections (62.8% of connections in Q4 2011)70, Japan ranks midway among the OECD in broadband adoption per capita population (16th in the fourth quarter of 2011, and only one place ahead of New Zealand at 17th)71. This is not to say that there are no effects, but it serves to emphasize the complexity of the ways in which effects can be achieved.
For a discussion of the merit of these statistics as indicators of the economic importance of technology, see Howell (2003). This is a key part of the government's wider strategy to increase New Zealand's global competitiveness, particularly compared to other OECD countries.
The Antipodean Policy Case
The context in which the New Zealand sea change following government investment took place differed, but was nonetheless political in origin, manifesting concurrently with the Australian intervention79. Political activism in the New Zealand telecommunications market became established earlier in New Zealand than in Australia. It was also claimed that the New Zealand initiative, like Australia's, was an exercise in assuming leadership in a nation-building exercise.
Since Australia is typically the main measure against which New Zealand's performance in any dimension is typically compared, it is highly unlikely that the major change in the direction of government investment in a New Zealand FTTH network was unrelated to the changes taking place in Australia. As one observer of the New Zealand processes noted, it was more a matter of “winning the hearts and minds of New Zealanders”88 than conducting a reasoned, evidence-based policy development process.
Summary
When assessed against the theoretical considerations in sections 1.3 to 1.5 above, it seems plausible that the pursuit of benchmarks of dubious merit in the politicization of the process has displaced the pursuit of economic welfare as the overarching political goal in Australia and New Zealand. It was clear that the intention among politicians was that the overriding goal was to win (or at least not be "left behind") in the "race" to roll out fiber broadband. For the balance of this paper, it is assumed that government interventions in the Antipodean telecommunications markets were driven by the desire to have a nationwide FTTH network, regardless of the direction the industry was developing prior to the interventions.
Orcon has approximately a 5% share of the New Zealand internet service provision market and has been a significant player in retail residential VoIP connections. These observations confirm that the government-funded FTTH networks in Australia and New Zealand overlap in a market where there is already some degree of real infrastructure competition, where consumers have already established usage patterns and preferences for different technologies and service providers. and where there is a real range of choices, at least in the present.
Competition Policy in Action: Australia
It could at least be assumed that a decision would be made as to whether the state-funded networks were based on providing the existing network operators with real infrastructure competition or replacing the failure of the incumbent (or indeed any unbundling participant) to make the progression from services provided over a monopoly legacy copper network for services delivered over a monopoly border fiber network. These provisions must also take into account the fact that the legacy of regulation was mainly based on the use of access regulation to stimulate service competition, but that in each country, at least in certain markets, effective infrastructure competition was either already present. or potentially able to arise without government intervention. Only if both of these were properly taken into account would it be possible for an appropriate competition policy position to be developed and supported with a range of regulatory instruments to guide the transition of the broadband market to the state expected to prevail when the new networks are became
96 See Heatley & Howell (2010) for a discussion of the effects of geographic average prices in the presence of infrastructure competition. Split-off provisions stem primarily from the perception that much of the historic tension that arose between Telstra, the ACCC and the government was due to the fact that Telstra was a vertically integrated company with both network and retail operations.
Competition Policy Implications: Australia
Australia's relatively low population density, even in suburban environments, means that mobile technologies could pose a real challenge to the fiber infrastructure's ability to attract the level of connections assumed in the business case. Falling costs and increasing capabilities of mobile networks could have a significant impact on the shape of the industry in the medium and long term, which is currently not clear. As a result of the "buyout" of their fixed line customers, Telstra and Optus (both of which operate mobile networks) have non-trivial amounts of money that they can use to deploy mobile infrastructure to compete with NBN Co.
The second major threat to NBN in Australia stems from the lack of effective competition for ownership of the company. It is therefore not surprising that evidence for each of the aforementioned "problems" has come to light since the establishment of NBN Co.
Competition Policy in Action: New Zealand
Government-Funded Network to Accelerate Infrastructure Competition?
The need for government-facilitated infrastructure competition is reduced in the next two largest cities, Wellington and Christchurch, thanks to the DOCSIS 3.0 compliant HFC network owned by TelstraClear (the market leader in broadband connectivity in the UK). these cities are sold, where investments have already been made). until the implementation of access regulation in 2001)106. In comparison, given the issues of scale and density, it might be questionable whether infrastructure competition is viable in some parts of provincial New Zealand (e.g. rural towns of less than 50,000 people). Unfortunately, it is impossible to determine on the basis of the contracts leased by CFH what the policy position regarding competition in the field of infrastructure could be.
But if infrastructure competition was considered viable in New Plymouth, Whangarei and Hawera, then it is astonishing that the same argument could not be applied to the comparatively more populous Napier-Hastings, Dunedin, Palmerston North and Oamaru. Alternatively, if Chorus was awarded the Napier-Hastings, Dunedin, Palmerston North and Oamaru contracts because infrastructure competition was not considered viable, why were contracts awarded to a Chorus rival in New Plymouth, Whangarei and Hawera – where inevitably be infrastructure competition develops as a result of the copper and fiber companies having different owners.
Government-Funded Network to Accelerate Copper Substitution Rate?
Since the price is determined using an international benchmark, any reductions in the cost of copper service provision internationally will lead to lower copper access prices (in real terms), making copper connections more financially attractive and undermining the ability of the fiber network to attract customers109. The Commissioner therefore does not have the tools or the mandate to change the copper price to accelerate fiber uptake – its statutory obligations are still to facilitate competition on the copper network alone. Consequently, he bears no responsibility for outcomes on the fiber network beyond the enforcement of the terms agreed between CFH and the UFB Cos.
In summary, therefore, it seems rather strange that if the government was investing in a fiber network to accelerate the rate at which frontier technology replaces legacy, it would instruct the Commissioner to proceed with a series of regulatory tools that directly militate against achieving the primary objective. of investment. If the government's need to invest in the first place was assumed to stem from the failure of access regulation to result in timely investment in fiber by private sector operators, and in particular the failure of the "scale of investment" to lead to infrastructure . competition as predicted by the theories, then it seems all the more strange that all the rules of inheritance that had apparently resulted in the obvious.
Political Pragmatism Trumps Policy Coherence?
So it was pragmatic to award at least one of the contracts to another company. Thus, transfers from the regulated company to consumers are treated as a benefit of the regulatory process. For one region (Noordland) the successful tenderers were announced well before the announcements about the other successful applicants were made.
The discussion paper suggests that the location of the selected bidders for the UFB contracts would have little impact on the shape of the regulation governing the copper operator. It seems unlikely that such an attitude could be held by policy makers who were aware of the strong interdependence between copper and fiber.
Competition Policy Implications: New Zealand
A single set of nationwide regulatory arrangements for access to Chorus' copper connections makes no provision for the fact that, as a result of the manner in which the fiber contracts have been awarded, Chorus faces a different set of competitive forces in the areas where it is the copper and fiber provider of those where its copper network faces infrastructure completion from either the state fiber operator or any other network. Yet so far there is no evidence that the regulatory environment can account for the distinctions. In June 2012, Vodafone – the largest mobile operator and third largest broadband retailer in New Zealand – entered into master agreements to purchase TesltraClear – the second largest broadband retailer and owner of the HFC network in Wellington and Christchurch.
In terms of fixed line infrastructure, the new company will have a dominant position in the broadband market in both Wellington and Christchurch. What is clear is that, while the interventions adopted are superficially similar, there are significant differences in the competition and regulatory policies that have guided the design of the state-funded networks and the will reigns as they are implemented. However, in the absence of clearly formulated government goals for the development of competition in the sector and as a consequence of the fragmented regulatory regimes associated with the deployment of a competitive infrastructure in an environment where previous experience has been limited to natural monopoly, it is contradictory. and confusing results are inevitable.
Paper presented at the Asia Pacific Regional Conference of the International Telecommunication Association, Wellington, New Zealand, 27 August 2010.
