Telecommunications Amendment Bill

Hon DAVID CUNLIFFE (Minister of Communications) Link to this

I move, That the Telecommunications Amendment Bill be now read a third time. Today is a landmark day for telecommunications in New Zealand. It is a day on which we see the most significant change in the legislative and regulatory framework since Telecom New Zealand was privatised nearly two decades ago. As such, it is appropriate at the third reading of the bill that we reflect on where telecommunications policy has come from, what role this bill plays, and where it is heading henceforth.

This bill is a central part of the Government’s package of measures to assist the New Zealand telecommunications sector to catch up with leading OECD countries, and to keep up once it is there. Combined with the Government’s broader information and communications technology and economic transformation programmes, this bill will promote and enhance competition in telecommunications markets for the long-term benefit of New Zealanders. It will facilitate innovation and investment in telecommunications infrastructure and services, and it will contribute to New Zealand’s transformation to a dynamic, knowledge-based economy and society, underpinned by fairness, opportunity, and security.

It will also pick up the theme introduced by the Green Party, of course. Advanced telecommunications will make a contribution to environmental sustainability, as well, by creating new opportunities to telework and teleconference, and reduce the burden of travel on our environment. So it is all good.

Information and communications technologies are recognised internationally as fundamental enablers of economic, social, cultural, and sustainable development. If New Zealand is to succeed on the world stage, we simply cannot afford to fall behind in adopting advanced information and communications technology. New Zealanders are hungry for the advances and benefits that information and communications technologies can bring and, as a country, we have shown on many occasions our capacity to adopt, adapt, and benefit from technological innovation. The Government recognises the importance to New Zealanders of information and communications technology. New Zealanders have made very, very clear in many opinion polls their support for the reforms being carried through the House today.

The Government’s policy framework was laid out in the Digital Strategy released in April 2005. The Digital Strategy emphasised the importance of progressing in parallel the three key enablers of information and communications technology—connection, confidence, and content. Eighteen months on we can see that that strategy has been a success. Broadband Challenge, the Community Partnership Fund, and a range of other initiatives have been launched under the strategy, but today we tackle those key connection issues that, if not resolved, become the bottleneck on the achievement of the broader strategy.

So it was that in November 2005 I launched the stocktake review of telecommunications, which reported on 3 May to the public. It is probably appropriate at this point to note that in the second reading debate a point was made by a member that the release of that review was under less than desirable circumstances. I agree with that point. Nobody was more shocked or annoyed than I was that a messenger in another department would see fit to breach his employment obligations and transmit a Cabinet paper to a member of the market. That having happened, the Government’s obligations were extremely clear. Upon receiving legal advice we knew we had to make the same information available to the whole market—which we did—after the New Zealand market was closed. That was, as has been proven, the appropriate step to take. As other members have said, any reactions in the market place would have been for a wide range of reasons, including the consideration of previous investments by the incumbent and factors such as the economic rents embedded in the market up to that time.

The public and the sector, on the basis of submissions, have very broadly supported the telecommunications stocktake, the main findings of which were as follows. Historically, New Zealand was, and has been up until now, in the bottom third of OECD countries across a range of telecommunications services and pricing, and about 3 years behind the pack. A factor in our poor broadband performance was the lack of effective competition, and we needed to fix that if we were to get the broadband we needed at prices the public could afford, to facilitate consumers’ demands and our economic growth. I note that Doug Woolerton, in his second reading speech, noted the need to set right what had been wrong in the past, including issues of unfair competition in the sector, and that has been recognised by a range of people.

The Green Party contributed to the debate by pointing out that here was one of those excellent opportunities to do good for the environment, good for our people, and good for the economy, all at the same time. We appreciate that party’s support, and we appreciate the Māori Party’s support for this bill. That party knows that the bill is good for its people and for other New Zealanders. Its members raised some important issues about mobile, and a process is already under way to address those issues. I think we need to respect the proper institutions that are conducting that process, but my door is open to them.

Both New Zealand First and United Future raised the issue of the important balance that is required between sustaining investment in this sector and creating fair competition for high-speed broadband. This bill is extremely carefully crafted in that regard. It follows the OECD and European Union mainstream approach, called the ladder of investment, that gives a reasonable discount for the entry-level services around the unbundled bitstream through something called retail minus pricing. The bill, going beyond that to local loop unbundling, then gives much deeper discounts through cost-plus or total service long run incremental cost lyric pricing, which means there is a strong incentive for entrants to really enter the market, put in some of their own gear, and invest in their own networks, thereby building stronger and stronger competition as their customer bases get a foothold. That is what has worked internationally, and that is what will work in New Zealand. The early evidence since 3 May is that there have been an increased number of investment inquiries in the sector, increased coverage of new players and new technology in the media, and very strong support for the direction the Government has shown.

In the second reading debate the ACT party, the only lonely party to oppose this bill, raised the old saw of property rights. I think this is an opportunity to debunk that approach, once and for all. I commend the Finance and Expenditure Committee, which considered that issue. All parties considered the issue very carefully and in some detail, but ACT said at the end of a long passage in the committee report that it disagreed. Why was that? Well, firstly, I think the ACT party has been a bit disingenuous in saying that this is about old ladies’ pension plans. The fact is that there is a very broad shareholding for the incumbent—but that is not the issue, as most of it resides overseas. The key issue is that regulatory risk is built into the share price of any incumbent telecommunications company anywhere in the world. A telecommunications company has to manage that regulatory risk by not playing too hard in the market to the exclusion of others. That is what Mr Woolerton was referring to when he talked about this bill marking a point of atonement for the past and creating a fair pathway to the future.

Secondly, shareholdings change hands many times. The shareholding of that company has changed hands many times since it was privatised, and as those transactions occur the risks need to be assessed by willing buyers and willing sellers—and they have been. Clearly, at the time of privatisation the Government’s right to regulate the sector was underlined, and that has not changed. So we have discussed, and I think dealt with, those issues. We have dealt with investment issues going forward.

So what happens now? When this bill is implemented, the next stage, as set out in the report from the select committee, will be a process of negotiating undertakings, where Telecom, in consultation with officials, will draft undertakings that will be worked through with the Government, through the Minister. We will end up with an enforceable, binding, robust, three-way operational separation that will require non-discrimination in wholesale markets and fair access to bottleneck and wholesale services. It will also underpin the other pro-competitive disciplines in this bill.

This has been a long and eventful road. The day is a very important day for New Zealand. It is not just about local loop unbundling and it is not just about any separation issues; these are elements of a thoroughgoing raft of reforms that are part of a broader, coherent digital strategy that will bring the benefits of information and communications technologies to all New Zealanders, at the prices New Zealanders can afford.

In closing, I pick up on one important set of issues that remains to be further progressed, and that is of importance to many parties here. It concerns rural telecommunications services. This is not the end of the road for the rural sector; it is the starting point for a new wave of analysis and investment in rural services. We have a rural strategy under way now, we are reviewing the telecommunications services obligations, and this Government pledges to ensure that rural New Zealanders will also benefit from the reforms going forward. I commend the Telecommunications Amendment Bill to the House.

Dr the Hon LOCKWOOD SMITH (National—Rodney) Link to this

This Telecommunications Amendment Bill that we will pass today is very important legislation. Therefore, we need to be very mindful about its full ramifications and honest about what we hope it will achieve and what it may not achieve. National supports the legislation, despite the fact that the evidence is not all one way on it, because we too hope it will achieve significant benefit for many New Zealanders in improving their access to telecommunications technology.

But we should acknowledge that the evidence is not all unequivocal. One of New Zealand’s foremost academics working in this area gave a very extensive submission to the Finance and Expenditure Committee. That academic, Bronwyn Howell, from Victoria University, is unquestionably New Zealand’s leading academic in this area. Some people may disagree with her views, but she is certainly one of the leading academics in this area. She made a couple of points to the select committee that I want to make sure are on the record in the House. She pointed out to us that our performance in the past has not been abysmal. She said that evidence showed that New Zealand was in a leadership position in the OECD in terms of Internet uptake and usage over the years from 1996 to 2006. She said that far from New Zealand being the dunce in the class, it was actually leading the OECD in Internet uptake.

She also pointed out that at a recent conference in Europe where the issues of local loop unbundling were being looked at, most papers showed that local loop unbundling had caused some quite perverse outcomes and results, and often chilling effects on infrastructure investment. She said that European Union data was showing that there was very little impact of unbundling on broadband uptake. I do not think we should necessarily be too troubled by that, but we should note it, because we should not expect this legislation to produce unrealistic outcomes.

The very last thing that the Minister himself addressed in his contribution to this third reading debate was the position of this kind of infrastructure on rural New Zealand. I was sad that he did not respond to my question during the Committee stage, because the Institution of Professional Engineers raised this issue with the select committee. I think it would be fair to say that all members of the select committee were quite impressed by the submission of that organisation. Let me make it very clear—members of the organisation supported this legislation. It is not that they were not supporting it, but they made very clear to the select committee that we have to be honest about what it will achieve.

They pointed out—as I mentioned during the Committee stage—that, in fact, there is a limit to what copper wire can deliver in terms of high-speed Internet access or high-speed broadband access. They pointed out that the maximum distance—technologically—from an exchange where high-speed access can be delivered is 1.8 to 1.9 kilometres. I asked the Minister what the typical local loop length is in New Zealand. Sadly the Minister did not respond to that.

The Institution of Professional Engineers also pointed out to us that if we want really high-speed, such as 5 megabits per second, we needed a copper wire length of no more than 800 metres—that is, under a kilometre. I pointed out that at home I am a good 10 kilometres from my local exchange—and most of rural New Zealand would be that far from their local exchange. I am not that far from local townships; I am not in the backblocks of beyond. I have a State highway going past my front gate. I am only 150 kilometres from the biggest city in New Zealand—Auckland. So there are very serious issues about rural infrastructure, because one of the major parts of our economy—the primary sector of our economy—is increasingly dependent on telecommunications. This is a serious issue.

When Telecom representatives were in front of the select committee and were asked about what this would do to the balance of Telecom’s investment, they were pretty honest about it. They said it would see the company probably focusing more investment in the more high dense population areas. This is what my colleague from New Zealand First Doug Woolerton, who was on the select committee, expressed as a concern of his during the Committee stage. He hoped we would not see the major investors like Telecom cherry-picking—to use Mr Woolerton’s term. There is nothing in this legislation to prevent that. In fact, Telecom was sufficiently upfront and honest with the select committee to acknowledge that, probably, there will be a bit of a shift in balance of investment.

That is why I am deeply troubled by the position that rural New Zealand remains in following the passage of this legislation, because we know that the length of copper wire servicing much of rural New Zealand will technologically not deliver high-speed access. Although I am encouraged that the Minister referred to that in the final moments of his third reading address just now, I think the Government needs to make sure the impacts of this legislation are carefully monitored. Although I know that some members disagreed with the evidence of Bronwyn Howell, I think it would be foolish to ignore totally what she said.

If members took nothing else from the extensive evidence she put in front of the committee, it would be that there is a need to monitor outcomes because any regulatory legislation like this can produce unexpected outcomes. We know from experience in Europe that some of the outcomes there where local loop unbundling has been put in place have been unexpected and not all as desirable in those countries as those who had been advancing the legislation had hoped.

I make it clear that National supports the legislation. We hope—and we expect—that the outcomes from this legislation will be positive for much of New Zealand. But we also have to be honest about what is driving 5-megabit access to the Internet. Much of it is not data handling, much of it is actually entertainment. Much of it is actually the desire to be able to access video on Internet and that is what requires that kind of broadband access.

R DOUG WOOLERTON (NZ First) Link to this

New Zealand First will be supporting the Telecommunications Amendment Bill and enthusiastically so. But I think it is important to point out the failures that have led to the need for this legislation.

SUE KEDGLEY (Green) Link to this

I will speak just briefly to say how delighted the Green Party is at the passage of this Telecommunications Amendment Bill, because I have not been working on it in the Finance and Expenditure Committee. But our only regret is that it has taken us so long to get to this point. I cannot resist mentioning that when we were considering the original telecommunications legislation, which established the Telecommunications Commissioner—I think in about 2002—the Green Party campaigned and, indeed, introduced amendments to this House to unbundle the local loop, but we had absolutely no support from any other party in this House. So it is great to see that now everybody else has caught up with the Greens, and that everyone—[ Interruption]—except for Rodney Hide and the ACT party—is now supporting what we were advocating and campaigning for, years and years ago. It just shows that once again the Greens are at the forefront, and that we come up with ideas that at the time are dismissed as being radical but a few years later are accepted as being absolute necessity and common sense.

We pointed out then that New Zealand along with, I think, Mexico were about the only two countries in the OECD that had not unbundled the local loop. We pointed out that telecommunications are so utterly vital. They are the new highway in the 21st century; I think they are what railways were to the 20th century. But, particularly for New Zealand, with this technology we can transcend our geographical isolation, and so forth. We need to be right at the forefront, at the leading edge, of this technology, and it is incredible that we have allowed a telecommunications monopoly—namely, Telecom—to hold us back for so long. Telecommunications are a key strategic asset in New Zealand that is so vital for our economy, so why did we sit around and allow Telecom, which inherited a monopoly in telecommunications, to exploit that monopoly, to hold back other businesses, to hold back on innovation, and to do everything in its power over many years to retain that monopoly? Instead, as the previous speaker said, the company could have been at the forefront, and it could have embraced change and innovation so that it did not get us to this point.

The Greens really want to give our support to this bill, and also underline the fact that telecommunications are vital in terms of their delivery of environmental benefits. If we finally do start telecommuting on a larger scale, we will not need to build new motorways. Telecommunications have huge benefits in terms of the environmental perspective, as well as in terms of enabling New Zealand to be competitive in the international world. At long last Parliament has caught up with what the Greens have been campaigning for, for about 6 years. We are absolutely delighted to support this bill, and our only regret is that it has taken us so long to get to this point. Thank you.

RODNEY HIDE (Leader—ACT) Link to this

I do not want to rehash what we covered earlier, but I have to say that one of the things that must concern us as a Parliament is that we know that one regulation invariably means more regulations. I heard Dr Lockwood Smith say that this bill has removed the sword of Damocles from hanging over Telecom, when in fact after listening to that member and to Mr Doug Woolerton, and after watching the Minister assent to their comments, I believe that the sword has been put there again.

Why do I say that? I say that because the first concern raised by Mr Doug Woolerton was about cherry-picking. This is the idea—Heaven forbid—that companies and investors would put their money where they could get a return! Is that not what we expect companies to do? Is that not how we expect them to manage their resources? No, that now becomes, in the language of this Parliament, cherry-picking! Mr Woolerton wants to say that companies should invest their money where the costs are so high that they cannot get a return. Because he lives, like Dr Lockwood Smith, in a beautiful part of New Zealand down 10 kilometres of copper wire, he says everyone else should have to pay for him to have the access that people can get in downtown Auckland. Mr Woolerton says that Telecom should carry that cost, so should the users and shareholders, or otherwise it is cherry-picking.

I was stunned to hear Dr Lockwood Smith of the National Party concur with that—that somehow this Parliament is going to force people to put their investments in that other place. I watched the Minister nod when Dr Lockwood Smith said National would be monitoring the outcomes of this legislation, and I asked myself what we will do if the outcome is not what we expect it to be—which will surely be the case. What will we do if the outcome is less than we expect? It will surely be that. And what will we as a Parliament do if Dr Lockwood Smith cannot download where he lives, on his beautiful farm, at 5 megabytes a second for his entertainment needs? What will we do then? Well, I suspect that in a couple of years’ time we will be back here beating up Telecom again for not doing what Parliament expects it to do.

I say to members in this House that we are making a terrible mistake when we try to regulate for outcomes, when we split up a company, and when we pinch its property rights, because that is what unbundling is all about.

I have a lot of respect for Mr Doug Woolerton. I know he has spent a lot of time milking cows and contributing to this country, and I know how excited he was when speaking to this bill. I have never seen him as animated as he was then. In fact, I wanted to give him some pills to calm him down, because I thought that in his advanced years as a member of New Zealand First he might not be able to access a senior card to the full extent of his entitlement. Mr Woolerton was excited beyond all belief and then went on to make some extraordinary statements. I think, in his excitement, he became carried away with his rhetoric. He suggested that somehow Telecom had not invested enough, that somehow it had not done enough in the way of technical advance, and that somehow it was not running its business right.

I do not know the basis on which Mr Woolerton made those claims. It must be on the basis of his great achievements while working in the telecommunications industry and at the top level of business and merchant banking in New Zealand, which we are yet to hear about. But does Mr Woolerton seriously think that if we had left the New Zealand Post Office to run our telecommunications as a monopoly—and Doug Woolerton would have opposed the sale and deregulation of it—we would have Internet use in New Zealand? It would have banned it! The New Zealand Post Office did not want to have fax machines, because of what they would do to telegrams. I say to Mr Woolerton that the benefits he enjoys today are the result of efficient business, of investment, of deregulation, and of—[Interruption] Whose money did Vodafone use to put in its network? I ask him where that came from. It is not as though the New Zealand Post Office would ever have built a mobile phone network for us to use. My goodness!

So I say to this House that we should oppose this bill. It is a pinching of property rights. It is this Parliament trying to run business. It will be counterproductive for investment in New Zealand and for telecommunications. I am proud to be in the ACT party, and, as I look around the House, I invite others to join with us and vote for property rights, for private contracts, and for free enterprise. I advise them not to join the National Party and vote for communism, which is what is happening here today.

SHANE JONES (Labour) Link to this

I will take a very short call as chair of the Finance and Expenditure Committee and after having been humoured at the end of the year by Mr Hide, who, I must say, although we have not seen a great deal of him, every time he does turn up—