Fair Competition Makes Consumer a Winner

LINDALE TOURIST COMPLEX, MAIN NORTH ROAD, PARAPARAUMU

Kapiti Coast Mayor Brett Ambler, Saturn Communications Chief Executive Jack Matthews, Ladies and Gentlemen.

We live in an age dominated by technology.

This is reflected in our language which is peppered with new words - some of which didn't even exist a few years ago.

Words like cellphone, microwave, fuel injection, xerox, RAM, CD-ROM, hard drive, software and cyberspace.

Twenty years ago we didn't even know half the things we're talking about in our language today.

Such is the development of technology and the convenience it has brought us.

When I was a boy there were no computers or cellphones. Our mum did the washing in a Copper with boiling water and we rode to school on horseback.

There were no McDonald's or Kentucky Fried Chicken. We definitely didn't have a stereo, CD player, or TV.

Life was so much simpler then. But it was also hard.

The point is, technology is a fact of life and it can be good or bad depending on how we use it and how we adapt to it.

To be worthwhile, technology must be affordable to the masses.

Remember when cellphones first came out? They weighed about 5 kilograms and had to be carried in a shoulder bag and could only be charged for an hour or so. And they cost a staggering $5000.

Now you can pick one up for 10 dollars and many people have got one.

Without doubt competition in a fair and open environment determines consumer access to low-cost, high-quality products and services.

In other words, competition makes life cheaper and easier for everyone.

And that's what I'm here to talk to you about today.

True competition is vital to making the consumer a winner.

But, too often, we have structures in place that make the New Zealand consumer a pawn on a chessboard littered with trapdoors and quicksand. And that's something we need to address.

In the telecommunications industry we have perhaps less than ideal competition which has implications for consumers.

We must ask: are consumers getting the best deal? Is there a level playing field for competitors? And is the Government doing all it can to provide the right environment?

The answers to these questions are never simple, but it behoves us to face the challenge of addressing these issues no matter how hard they are. We could sit back and say the current service providers are doing a pretty good job and leave it all alone - put it in the too hard basket.

But we can and we must do better than that. Our concern is to ensure true competition exists for the benefit of the consumer.

You will no doubt agree on the need for fairness and protecting the interests of ordinary New Zealanders. You have heard me speak before about the disproportionate influence that big business has had on Government in the past.

That influence does not sit well if overrides the concerns of ordinary New Zealanders. People must remember that that influence was precipitated by the first past the post system and thankfully being rebalanced by MMP.

In the past you have heard me speak about apparent anomalies in the way the law is applied to business.

We are all equal in the eyes of the law, and must do everything in our power to ensure that this maxim is upheld.

Let me assure you that that is not an easy battle, but the difficulty of a task is not a reason to resile from one's duty. When the load gets heavier, we must ask not for a lighter load, but a stronger back.

Saying that is not anti-business.

On the contrary, we are pro-business and pro-growth.
We are pro-fairness and pro-equity.
We are pro-competition and pro-consumer.

Everyone's interests must be accounted for and as regulator, the Government has a key role in ensuring this happens.

With this background in mind it irks me, as I'm sure it does other New Zealanders, to see consumers (mainly small household consumers) getting a raw deal. In short, we have a right to expect fair play and a right to be annoyed if we are not getting that.

So what is the state of play in the telecommunications industry and is competition really working?

I commissioned Treasury officials to conduct a review of competition in the industry and they have come up with this report (hold up document).

I'm happy to say that in some areas competition is working well and prices have dropped while services have improved. Real prices for a typical basket of services used by a household consumer are 26 per cent lower than in 1987. National and international toll market prices have dropped by several hundred per cent since deregulation.

However, eleven years after the industry was deregulated there remain some serious concerns about pricing in other areas. Since 1990, the price of local call service has gone up each year by the maximum allowable amount prescribed in the Kiwi Share, while the costs have actually gone down.

In short, efficiency gains are not being passed onto consumers through lower prices.

The arrival of new entrants in the local service market should change the situation and Telecom's response to Saturn's entry in Lower Hutt recently shows this to be true.

Telecom has lowered its prices to meet those of its new rival. But therein lies the rub.

Is Telecom's response one of fair play and genuine competition or is there something more sinister going on which could in fact inhibit long-term competition in the local service market.

I am talking here about discriminatory pricing, where a dominant player uses a selective pricing strategy to force out a new competitor. If competitors are squeezed out by discriminatory pricing - the New Zealand consumer will be the ultimate loser.

This is a major concern for the Government and something that must be examined more closely.

The Commerce Commission has decided Telecom's tactics are okay as far as the Commerce Act is concerned. It found no evidence that Telecom was using its dominant position to restrict, prevent or eliminate competition.

But the Commission's finding doesn't mean that everything is okay as far as competition is concerned.

As the regulator, it is the Government's role to ensure an environment where competition thrives because that is what is best for the New Zealand people.

When competition works properly - then the consumer will have improved access to low-cost, high-quality products and services.

At the present time, it seems we have a less than ideal environment for enabling competition to work. The field is not level at this time and must be evened out.

The Coalition Agreement states that guidelines for interconnection, transparency and number portability will be introduced if necessary.

There maybe a case for new legislation. However, we are reluctant to jump into this quickly because of our preference for a light-handed regulatory framework that places as little burden on the industry as possible. But it maybe that the Commerce Act is too light-handed and some amendment may be necessary.

New players are finding it too difficult to break into the local market and expand due to Telecom's size and dominance and the current legislation offers them little comfort. This needs to be addressed.

The major outstanding issues outlined in Treasury's report include:

the terms and conditions for network connection.
number allocations and number portability.
competition in local telephone services.
effects of the Kiwi share.
effectiveness of the Commerce Act in dealing with competition issues.
Many of the problems for new entrants in the local market stem from uncertainty about the regulatory framework for interconnection.

Perhaps, it's time for the Government to calculate and enforce the price of interconnection to provide certainty for the market. This would certainly be more desirable than the current costs of ongoing litigation by contestants. In the meantime, more investigative work is required.

Interconnection charges also make it less economic for competitors to vigorously compete for toll services between adjoining local free-calling areas. Again a regulated price may provide more certainty in this area.

Today's Treasury report recommends that further work be done on the above-listed items and I have accepted that advice.

Work is already underway on telecommunications numbering, information disclosure requirements and Commerce Act penalties and remedies.

Also under review will be the possible need for measures to prevent discriminatory pricing in light of the Commerce Commission's finding in the Hutt Valley.

Officials will also be asked to report on interconnection terms, and the Kiwi Share arrangement which has not been reviewed since its inception in 1990.

The Minister of Communications, Maurice Williamson, is working with you and supports the view that more work needs to be done and this is foreshadowed in the Coalition Agreement.

The Government's objective is to serve the best needs of the consumer.

We should not be afraid to review the Kiwi Share. In any case, the Kiwi Share is only needed in urban New Zealand, because we haven't got the regulation right.

And that's the main point here. We have got to get the regulatory environment right so that it supports fair competition.

And the principle reason for advocating fair competition is that it provides efficiency and the best price for consumers.

Having said that I congratulate Saturn Communications for having the courage to enter the New Zealand market to take on a giant like Telecom.

It's now our task to make sure the odds are not stacked against new competitors like Saturn. It's no good having these new entrants if they don't stay. To that end, Saturn's entry in the local phone market is a test case.

It's important that new competitors find it viable to set up business here. It's important that New Zealand consumers get the best deal. And this should start today with the people of Kapiti who have turned to Saturn as an alternative provider.

I look forward to ongoing, sustainable competition and the benefits that will flow from that for all New Zealand telecommunications consumers.