Tighter Telecommunication Regulation Unjustified

Professor Lewis Evans
Executive Director
NZ Institute for the Study of Competition & Regulation

No Justification For Tighter Regulation Of Telecommunications

Adopting the recommendations of the Telecommunications Inquiry would threaten New Zealand’s leadership in e-commerce and leave consumers worse off.

That is the conclusion of a review by the New Zealand Institute for the Study of Competition and Regulation, its Executive Director, Prof Lewis Evans, said today.

“One would expect robust analysis to support startling claims of huge potential benefits for consumers and greater efficiency in the economy overall. One would also expect damning evidence of why the Inquiry believes the current light-handed regime is letting consumers down.

“Regrettably, the Inquiry report provides neither,” Prof Evans said.

The Inquiry’s key failing is its focus on the short term, while virtually ignoring the longer-term effects of its recommendations, Prof Evans said.

“The proposed price regulation, for example, would reduce reduce incentives to invest, to innovate and to adopt new technologies. For potential new entrants, it would reduce their incentive to join the market at all.

“It is easy to see that this would lead to upward pressure on prices.

“The irony is that when price regulation pushes up prices in this way, that in turn is seen as justifying price regulation.

“But this is more than ironic; it harms consumers. Lower levels of investment and competition will inevitably lead to a lower quality of service than otherwise. Consumers may pay a little less tomorrow, but they will receive poorer service before long.

“That means that the Inquiry’s claim that consumers would be $328 million a year better off – and the economy $44 million a year better off – is simply not credible,” Prof Evans said.

Prof Evans said it was difficult for any regulator to determine how different consumers and businesses would balance a choice between prices today and quality tomorrow.

“For this reason economists tend to advocate open markets to resolve these trade-offs, wherever competition is credible. Telecommunications is clearly an industry where competition is alive and well. There is no justification for heavy-handed regulation,” Prof Evans said.

“Nor has the Inquiry identified what deficiencies it wants to fix,” he said.

Internet connections are up to 41 percent cheaper in New Zealand than in Australia, and more New Zealanders per capita have Internet connections than Australians have, according to an ISCR study.

“The only basic difference between the two countries is Australia’s more heavy-handed access regulation,” Prof Evans said.

Another ISCR study has shown that New Zealand’s e-commerce infrastructure is among the top group in the world. This country has become a very early adopter of e-commerce and, in certain cases, our prices are lower even than those in the United States.

“Perhaps the most persuasive argument is that the United Kingdom, which has a regime very similar to that advocated by the Inquiry, does not rank highly in early-adopter studies, despite its population density potentially contributing to lower costs,” Prof Evans said.

“It would be a terrible mistake to use the analysis in the Report of the Telecommunications Inquiry as the basis for heavy-handed regulation of one of New Zealand’s – and the world’s – most dynamic sectors.”

ENDS

For further information:

Prof Lewis Evans, ph (04) 463 5560

The report on which this media statement is based and the other NZISCR research mentioned herein are available at www.iscr.org.nz under “research”.

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