Regulation In The Telecommunications Sector Made Things Worse

Telecommunications users are happy that Coliseum has bought English Premier League Rights and pipped SKY Television at the post. They are correct that if this venture works out, like it already does for NBA, AFL and NHL, then there will be more competition in content available for consumption the way you want to consume it.

But the discussion around broadband caps and broadband speeds forgets something really basic. Regulation in the telecommunications sector, intended to shake things up and kickstart more competition, hasn’t delivered on that promise at all. In fact, the government has completely screwed up the cost/benefit calculation when it comes to capital investment in telecommunications.

Chorus CEO Mark Ratcliffe made a comment a few months ago that overseas investors thought that New Zealand’s telecommunications regulatory framework was “a bit odd”. He’s right – why would you invest or lend in large capital projects that would lead to a competitive advantage which would then be regulated away to firms that did not take on the risk of large capital investment projects?

That’s why UFB has to be funded by the government. They know, but they won’t tell the public, that they’ve destroyed private sector incentives for large scale network investment. The Commerce Commission sets prices for different services and wonders why prices don’t move much around those price controls. It’s hilariously naive.

Regulation in the telecommunications sector has had a negative effect on competition. The argument that high costs relative to other OECD countries does have some merit because we’re splitting fixed costs over a smaller population, but when you take a step back and look at how much regulation there is around telecommunications, it isn’t hard to realise why everyone except the government is annoyed with the telecommunications products they can consume.