Why intervention is needed for Telecom and not for Auckland

Falafulu Fisi asks an excellent question to the previous post on Auckland Airport:

“Aren’t both Auckland Airport & Telecom private companies? Why would you want to say that the government is an interventionist regarding the CPPIB attempt to buying shares in the Auckland Airport but not saying the same thing about Telecom?

I am a defender of property rights, and the state has no right at all to meddle in the affairs of private businesses such as Telecom or Auckland Airport. That decision to sell or not to sell is entirely up to the rightful owners (ie, the Airport Shareholders) and not those Commissars in Wellington .

That was a great question, but I feel I am being entirely consistent here.

I am a fan of Govnerment intervention when the market is so inefficient and the company is out of control that the other stakeholders (beyond shareholders) are under threat, and unable to do anything about it due to monopoly power.

I’ve been wandering around NZ this week and frankly the broadband situation is beyond a joke – it is shameful crime that has left us in the dark ages of the internet.

There is a very well run dot com that I visited yesterday that is unable to even hold phone calls over Skype to the UK or USA as their connection keeps dropping out. This means increased costs, but even more importantly, that they are not part of the global internet business community that lives, wheels and deals on Skype. (Try putting together a 6 way phone call using traditional services at a moment’s notice.)

Now their customer base is almost entirely overseas, but they should be able to operate from NZ. But despite Wellington’s other advantages they would be not without cause if they uprooted and headed for the first world.

Government intervention into Telecom is the only way that the primary stakeholders (customers and the economy) could get the service that the country needed. There were plenty of warnings, but the head was stuck firmly in the sands of short term profits.

There are plenty of other monopolies and duopolies in NZ that understand how to play the game when you own a market. You set your prices well below monopoly prices, you are great to your customers and you know if you step out of line then the ComCom and the Government will be all over you.

Auckland Airport has not exhibited poor behaviour – they are running a good business, and are even upgrading the domestic terminal. An equivilent case for intervention would be if they put prices up, ran the terminals into the ground (and so spoiled NZ’s image and tourism numbers) and milked the dying cow.

All that is proposed for Auckland Airport is a change of ownership, which has no material impact on the relationship between the corporation and it’s stakeholders. It’s not as if the new owners are going to roll the airport up, put it on the back of a ship of unusual size and transfer it to a field outside Toronto. This intervention is uncalled for from the customers that use the airport, and to compound it has a negative effect on FDI for NZ.

Where is Infratil while this is going on? They are conflicted – on the one hand they own Wellington Airport and would love a piece of Auckland, so they should keep quiet. However on the other hand they own Preston Prestwick (edit – thanks Tylersdad) Airport South of Glasgow in Scotland, and they should be deeply protesting our Government’s ham-sized fists which will make it much harder for them to buy other foreign airports in the future.

Published by Lance Wiggs


11 replies on “Why intervention is needed for Telecom and not for Auckland”

  1. Infratil own Glasgow Prestwick – not Preston. they also own an airport in Germany called Lubeck (90%), and one in UK called Kent. they are also looking at Whenuapai with a JV with Waitakere CC. Understandably they need to be very quiet about thier views at this time. The key matter however is that AIA is NZs key gateway whereas Infratils other airports are not key gateways into said countries. Why was the Govt of the day allowed to sell the rail network? another key infrastructure in NZ. NZ is too small a country and we need to have a view of what are our key assets and protect them – from monopolisation. Rail, Copper lines, AIA, Wgtn, & Chch Airports, and primary producers such as Fonterra (but not an airline). list them by all means with a 50% Govt ownership, 30% to kiwis, and 20% to the rest of the world. Force banks to keep 50% of profits in NZ would be good. Oh, and prevent the govt from bailing out companies like it did for BNZ many moons ago.


  2. There should be no excuse for a Wellington-based company to have a connection that cannot support Skype.

    If they are dumb and equate Internet with ADSL and want it for $100/month then yes.

    But if you pay around $1K-$2K for quality Internet delivered, you won’t have an issue.

    The problem is that although there is competition providing genuine service quality, the market has been so confused by Telecom that broadband = ADSL and that’s it that they often don’t know how to look for alternatives,how to deploy them and even what Internet service actually costs.

    There are two things holding back business Internet access in NZ. One is data caps and excess data charges. The other is the notion that you can get quality Internet for under $100/month. (Residential access is a different story).


  3. Hi Stu

    Can you clarify what kind of broadband connection you are suggesting that costs $1-$2k per month (?) ?

    Surely we shouldn’t have to pay that much just to run Skype.

    Look forward to clarification.



  4. For that price, you should be able to find a plan of around 5Mbps national/1Mbps international committed bandwidth which would provide you with the quality assurance needed. Add some smarts on your end to prioritise Skype and/or move to a dedicated VOIP solution and off you go. (Maybe more than that bandwidth wise and maybe cheaper; I’m not 100% current on Wellington-based pricing). Trying to operate a quality-sensitive service over best-efforts bandwidth (ADSL or burst or oversold service) isn’t going to work consistently.


  5. Tylersdad: “Why was the Govt of the day allowed to sell the rail network? another key infrastructure in NZ.”

    Rubbish, you could close most of it down tomorrow with hardly any net effect. It was allowed to sell it because it was democratically elected, like it was allowed to bail it out three times in 8 years. Why didn’t you buy it?

    Name one harmful thing foreign ownership can do, other than stir up fears of those with xenophobic conspiracy theorist tendencies.

    Falafulu Fisi is dead right.


  6. If we all thought the same the world would be a boring place. Imagine how efficient it would be for a double track the length of the country, with branch lines out to the Naki or the Bay. All those trucks off the road trudging between the Bombays and the Capital. I would probably buy shares in it, if it was run right. how can a company buy the track for $1 and have the Govt buy it back for $50m or whatever the cost was. i recall Mr Fay and Mr Richwhite making a bit of a profit courtesy of our democratically elected Govt buying and selling assets. Of course the Govt will never double track – we have the RMA in the way for a start, never mind the various freight companies who would devalue overnight, job losses etc etc.


  7. Tylersdad: Just wait until oil hits 150-200-250 a barrel. Then suddenly the appeal of rail will become apparent. In the US they are reworking the rail network as a viable solution to long distance trucking.


  8. Martin, in the US railways are all entirely commercial privately owned businesses. If you want to know why it works there, look at the distances, topography and loading gauge (lack of tunnels), and the fact private businesses can run very efficiently. In fact until the late 70s, rail was regulated to protect road transport in the US!

    You could double track the rail network, and find that it makes no differences of course. The problem is the railway lines don’t go to most businesses door to door, or warehouses. Triple handling kills the viability of rail for small lots as it is labour intensive, increases insurance costs (risking damage), and fuel/land intensive (forklifts, storage). Rail only starts to work with large wagon loads, but really competes with train loads – precious few trainloads of goods are consigned long distance in NZ.

    Of course if you remove trucks from the road, you remove revenue from them too – it’s fairly zero sum. Savings on maintenance easily offset by loss of road user charges.


  9. Actually the track was leased for £1 from the government, the government decided to buy the Auckland network for $81 million, when Treasury valued it at $20 million tops, and has bought back the rest of the network for $1. The government has always owned the land under thr track.


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