Submission on Telecommunications Amendment Bill

NEW ZEALAND BUSINESS ROUNDTABLE

Submission on the Telecommunications Amendment Bill

August 2006

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Executive Summary

- This submission on the Telecommunications Amendment Bill is made by the New Zealand Business Roundtable (NZBR), an organisation comprising primarily chief executives of major New Zealand businesses. The purpose of the organisation is to contribute to the development of sound public policies that reflect overall New Zealand interests.

- We submit that the measures in this Bill represent (i) a major taking of private property rights without an acceptable public-interest justification, (ii) a lack of due process, and (iii) a lack of consideration of the question of compensation. The minister of economic development, Hon Trevor Mallard, has stated that: We cannot expect private individuals – New Zealanders as well as foreigners – to commit long term to this country's prosperity if they are at risk of having their assets stranded or devalued by government intervention.

This statement is correct. We are at a loss to see how the government’s action squares with it. This has implications for the security of investment and thereby the cost of capital right across the economy.

(i) Lack of a public-interest justification

- No acceptable public-interest justification for the measures has been provided.

The regulatory impact and business compliance cost statement (RIS) in the Bill's explanatory note makes it clear that officials have not undertaken a quantitative cost-benefit analysis of the measures in the Bill. Such an analysis would focus on the impact of the proposed regulation on economic efficiency, represented by total (producer plus consumer) surplus, relative to the status quo.

- The estimates of consumer surplus benefits cited in the report are those of the Commerce Commission in 2003 and come to well under $100 million over a fiveyear period. By contrast, the losses in producer surplus, as represented in an approximate way by the fall in Telecom New Zealand’s share price, are of the order of $3–4 billion. While the proposed measures are now more extensive than those considered by the Commission and it is claimed that consumer benefits have increased, it seems wildly implausible to postulate an increase in consumer surplus that would have to be more than 30 to 40-fold greater than estimated by the Commission to exceed the fall in producer surplus and justify the proposed measures. At the very least, a new analysis should be required.

- The credibility of the RIS is further reduced by its one-sided, superficial and sometimes erroneous claims about economic benefits. We have not analysed it in detail because, as explained, we cannot see how plausible public benefits could conceivably exceed demonstrable public costs. However, we are aware of the submission being made by Bronwyn Howell of Victoria University. It contains a large number of criticisms of the analysis behind the Bill and concludes that a sound case for intervention has not been made out. We share in particular her concerns about the focus on platform-based competition (using incumbents’ networks) rather than dynamic competition based on investment in new facilities, the factual errors and misrepresentations in the broadband debate, and the lack of evidence that unbundling and related measures have produced superior outcomes in other jurisdictions. We commend her submission to the committee’s careful attention.

(ii) Lack of due process

- Due process requires that citizens not be punished except for a distinct breach of law established in an ordinary legal manner before a court or comparable body.

Citizens must have the opportunity to hear and respond to the charges against them. Proper rules of evidence must apply and the judge must be impartial.

Rights of appeal would apply. The Telecommunications Commissioner followed due process and recommended against the types of measures now in the Bill. It appears that the executive had prejudged the case and did not accept his conclusions. Subsequently, no such process has been followed, no distinct breach of law has been established, interested parties were not consulted and a draconian penalty has been imposed. This is an unacceptable way for any government to proceed.

(iii) Lack of consideration of compensation

- If a sound public-interest justification for the measures were established, we would be happy to support the Bill. However, in that event the issue of compensation would arise. A particular group (shareholders in Telecom) should not have to bear the costs of the regulation in the interests of the wider public.

Public Works Act principles should apply. The Cabinet Manual requires that compensation is considered where rights in private property are taken and if compensation is not to be paid, the legislation should make this clear. The minister of finance Michael Cullen emphasised the importance of the compensation principle in another context when he said:

… no principled government could simply legislate to extinguish those [(customary) property rights] because that would be theft … Like any other property right, customary rights, where they are established, should not be taken without just compensation.

We have considered whether there might be grounds for denying compensation and doubt that they exist.[1] We submit that the issue of compensation needs to be addressed.

- We therefore recommend that the Bill be referred back to officials with an instruction to meet the Cabinet Manual requirements relating to cost-benefit analysis, due process and compensation and report further to the government.

- If the Bill proceeds, our submission recommends that a sunset clause be included in it; that the Telecommunications Service Obligation be abolished; and that ways should be found to restore the independence of Crown regulators from the executive.

[1] We also note that a United Future MP (Gordon Copeland) currently has a member’s bill before a select committee that would incorporate economic rights in the New Zealand Bill of Rights Act. If the bill does not apply to this situation, then what does it apply to?

ENDS

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