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Telecom’s Spurious Monopoly Defence

3 March 2006

Media Statement

McLeod’s Vested Interest Exposes Telecom’s Spurious Monopoly Defence

Econet was appalled to see Telecom director Rob McLeod (last week in the Dominion Post) arguing against regulating Telecom in his capacity as the Chairman of the New Zealand Business Roundtable. It is extraordinary that the Business Roundtable would allow its Chairman to use the Roundtable as a platform for promoting a company of which he is a Director.

Furthermore, the tired argument he runs – that regulation stifles investment and innovation – is now laughable in the face of overwhelming OECD evidence and the parlous state of our telecommunications market.

If ‘bare bones’regulation was indeed the key to a thriving telecommunications sector, then New Zealand should have the most efficient, innovative and advanced market in the world. Instead, New Zealand sits at the bottom of every OECD table in terms of investment and pricing.

For years, Telecom and other incumbent monopolies (airports, lines companies, port companies etc) in this country have kept regulation at bay through the spurious threat that regulation will kill off investment and innovation. As the New Zealand telecommunications experience illustrates, what in fact kills investment is the absence of competition. That competition drives innovation is arguably the most fundamental point of all economic theory. Yet somehow, New Zealand has constructed and lived with a telecommunications regime contrary to this simple principle.

The concept of “dynamic efficiency”, which McLeod refers to, has been misused in this country as a justification for super-sized monopoly profits. It is all very well to argue that firms need to generate returns to invest in research and innovation, but if those firms are not subject to competition those returns are not going anywhere other than the pockets of shareholders.

New Zealand consumers and small business operators are not only paying the highest mobile prices in the OECD, but they are also subsidising Telecom’s failed AAPT venture in Australia. These kind of failed global campaigns are the luxury of companies secured by a comfortable home-based monopoly.

The regulation of telecommunications in this country, particularly mobile, is totally out of sync with the rest of the world and flies in the face of basic economic logic. Serious regulatory change is at least a decade overdue.

New Zealanders have had enough of Telecom’s threats, brinksmanship, misinformation and lack of delivery. The fact is that since deregulation, New Zealand’s telecommunications has been, and continues to be, the laughing stock of the developed world. No amount of propaganda from Telecom or Rob McLeod will change that.

ENDS

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