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Progressing to the next stage of competition

Hon.Paul Swain
12 March, 2001 Speech notes

Progressing to the next stage of competition reform and economic development

4.20pm – Auckland - Utilicon New Zealand

Good afternoon and thank you for the invitation to speak to you today.

I was asked to talk to you about progressing to the next stage of competition reform and economic development. What are the government's priorities for change? And what are the policy challenges for the future?

I would say that one of the greatest challenges facing New Zealand and other countries with similar economies is how do we promote the modernisation and transformation of our economy.

New Zealand has to change from a country that is over dependent on commodities to one where information and knowledge both add and generate value for traditional and new products and services.

To this end, the government has embarked on a major programme to promote science and innovation, provide support to New Zealand industry, improve our skills level and target business and skilled migrants.

Last year the government began a programme of business and competition law reform and this year much of that will come to fruition in Parliament. At the same time we embarked on a number of projects including E-Commerce, Electricity and Telecommunications Reform which are also starting to bear results.

First of all I would like to talk about the business and competition law reform.

Our goals in this area are to improve and update the law, to reduce compliance costs for business and to improve the competitive environment.

The Commerce Act Amendment Bill
The Commerce Amendment Bill, which will strengthen the Commerce Act, has just been reported back by the Commerce Select Committee and it is a high priority for the Government to enact the Bill as soon as possible. This Bill will bring our competition law in line with our largest trading partner Australia. This is important – last year we signed a Memorandum of Understanding on Business Law Coordination with Australia. The MOU promotes similar rules as far as possible between New Zealand and Australia so that business on both sides of the Tasman can do business with greater certainty.

The Takeovers Code –
Recent events, particularly the takeover of Montana by Lion, have brought new focus on New Zealand's need for a Takeovers Code. The new Code will take effect on July 1 this year. It will achieve several things.
It will:
Lay out an orderly process for companies to follow when staging a takeover.
Be governed by an independent Takeovers Panel.
The Takeovers Code and Panel will mean that all shareholders, big and small, are treated equally in a takeover situation.

Insider Trading
As important as the Takeovers Code in restoring investor confidence is the strengthening of New Zealand’s insider trading regime.

Last year we released a discussion document that focussed on detection and enforcement. Officials have reported to me on this and I will be announcing policy decisions on a more robust Insider Trading regime in the later this year.

Reducing Compliance Costs –
Business compliance costs arise from a wide variety of Government activities. We know they can have a significant impact on business competitiveness and are a major concern of the business community.

We accept that to improve the regulatory environment, and reduce compliance costs to business, there must be a “whole of Government approach”. All Ministers are making business compliance cost reduction a priority.

The government has appointed a Business Compliance Cost Panel, made up of a good cross-section of business people.

The Panel will identify and prioritise compliance costs faced by business, and suggest ways that they can be reduced. This is the first time a government has taken this approach. The Compliance Cost Panel will report back to the Finance Minister and me by June 30th.

In addition to this each new legislative or regulatory proposal from government will be accompanied by a Business Compliance Cost Statement. These Statements will be made public and will focus our minds on the costs imposed on business before legislation is passed.

Tax Simplification
As Associate Revenue Minister I have responsibility for the government's tax simplification regime.

In mid-April the government will be releasing discussion documents relating to, among other things, simplifying provisional and PAYE tax. I look forward to your input into this process.

Last year the government launched its E-Commerce Strategy at an E-Commerce Summit in Auckland. That strategy identified three key commitments for government:
We are committed to providing leadership, by being a model user.
We recognise we have a key role in building the e-commerce capability of business, individuals and communities.
We are committed to building an enabling regulatory environment.

Our priority this year is to take the Strategy forward.

One of our first moves has been to get the E-Commerce Action Team – or ECAT - up and running. ECAT is a partnership between government and the private sector, and has two functions – to advance the implementation of the government's E-Commerce strategy, and to report on the progress of E-Commerce strategies throughout industry.

The core membership was announced last month and met for the first time on Tuesday last week.

Electricity Reform
As many of you may be aware, the Electricity Industry Bill was introduced into parliament in November last year. The bill was the result of an Inquiry into the electricity industry started in February last year and reported to the minister of energy in June 2000. The Inquiry, which was chaired by David Caygill, produced a very worthwhile report. The Inquiry recommended primary reliance on industry self-regulation, with the government to step in if the industry failed to deliver.

The bill is based around those principles. It was referred to the Commerce Committee in December 2000 and the Committee is currently hearing submissions. The government's initiatives in relation to the industry, including the electricity bill, will go a long way toward improving matters in this sector.

The key issues in electricity are:
Making rules so that the wholesale market and transmission (the national grid) operates efficiently, and meets environmental, renewables and energy efficiency objectives. This can be done through industry self-regulation and self-governance under Government guidance and threat of regulation if necessary.

Ensuring that lines, which are natural monopolies, do not overcharge consumers. This requires a price control regime operated by the Commerce Commission.

Ensuring that some social objectives are met, in particular that retailers don't charge unfairly high fixed charges to smaller consumers: this can be regulated for if necessary (however all the signs are that the Government's objective will be met without regulation).

I am confident that these initiatives will assist in obtaining the objective of fair, reliable and environmentally sustainable delivery of electricity to all consumers.

As far as gas is concerned, the government indicated in its response to the Caygill Inquiry that we would be looking at the most appropriate regulatory regime that should apply for the gas industry.

The government will soon be announcing its intentions in that regard.

Late last year the government announced a range of measures in response to the Ministerial Inquiry into Telecommunications.

Using the principle of 'as much market as possible and as much government as necessary' these measures are aimed at improving the regulatory regime for telecommunications.

We aim to ensure delivery of cost-efficient, timely and innovative telecommunication services on an ongoing, fair and equitable basis to all New Zealanders.

The measures include:
The establishment of a new Telecommunications Commissioner operating from within the Commerce Commission;
Regulation of key services including interconnection with Telecom's fixed telephone network and wholesaling of Telecom's fixed network services;
An updated Kiwi Share, including bringing basic Internet access to virtually all New Zealanders by upgrading Telecom's network to provide 9.6kbps data capability to 99% and 14.4kbps to 95% of residential lines.

It is expected that legislation will be introduced next month and will come into force later this year. Preliminary work on appointing the first Telecommunications Commissioner will start shortly. We must get the telecommunications infrastructure right if we want to be a player in the knowledge society.

Why two regulatory reform processes?
You may wonder why the government has chosen to separate the regulatory reform of the energy and telecommunication sectors?

The answer is that while both sectors are networks, the issues and problems are fundamentally different. Government wants to fit the solutions (the regulatory regime) to the problems rather than have one size fits all.

In telecommunications, the key issue is access (or interconnection) for competitors to Telecom's lines and infrastructure.

This requires a regulator to sort out disputes.

A second issue is the provision of quality telecommunications services to rural areas, and ensuring all New Zealanders are able to take part in the knowledge economy and information society.

The problem of access for competitors to lines doesn't occur in electricity because of the separation of lines businesses from the competitive retailing and generation sector. That is, lines companies have no incentive to make access difficult for retailers and generators because they (the lines business) are not competing in these sectors.

As I've said, the issues in electricity relate to rules for the wholesale market and transmission, natural monopolies and switching. These issues have required therefore a different regulatory response to that of telecommunications.

Of course the industries are themselves working together on some convergences of technologies. One of the best examples I have seen of this in recent times is that of United Networks which is using gas ducts in Auckland and Wellington to carry fibre optic network.

And Auckland energy company Vector has also recently plugged into the telecommunications market with a subsidiary called Tangent, which uses a high-capacity fibre-optic network to offer data services to business customers.

The network is entirely fibre-optic cable and runs alongside the power network - although it is not carried on power cables.

However I did read with interest recently of work in Germany and Israel to transmit voice and data signals over normal low-voltage power lines without the need to dial up. The customer attaches a modem to his home computer and connects this to any wall socket to surf the internet. This is fascinating work and I'm looking forward to keeping an eye on its progress.

As time goes on we will see more of these sorts of convergences between utility networks. They will occur naturally as businesses recognise the usefulness of using existing infrastructure to carry new technologies.

Thank you for your attention.

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