Deregulation

20. Late in 1987 a report²⁴ by the Business Roundtable recommended substantial reform of telecommunications. In essence it proposed that the monopoly of the new SOE, Telecom Corporation of New Zealand (TCNZ), should be removed with competition regulation by a body such as the Commerce Commission. The report also recommended the introduction of "a system for allocating and pricing the radio frequency system on a competitive tendering basis"²⁵.
21. On 17 December 1987 the Hon R. W. Prebble, Minister of State-Owned Enterprises, released a Government Economic Statement which, in a section entitled Deregulation of the Telecommunications Industry, stated "the Government has decided to remove the statutory prohibition on competition with Telecom's network with effect from late 1988 or the start of 1989". The paper went on to say "The Government recognises that the radio frequency spectrum can play a major role in developing an efficient telecommunications market. The Government has instructed officials to report in 1988 on policy options available to make the best use of the spectrum".
22. Early in 1988 the DTI commissioned a report²⁶ that surveyed economic literature on radio spectrum management. In particular, material on the economic theory of spectrum property rights (Coase) and a specification for such rights (de Vany et al) were explored. While promoting the concept of TAS²⁷ units, de Vany et al acknowledged that rights could be defined with an emphasis on either flexibility or certainty. They suggested that economic efficiency implied that one chooses between alternative property right specifications so as to maximise the aggregate value of resources to users, net of aggregate transaction costs (negotiation on externalities, monitoring and enforcement). It was their view that narrowly restricted rights are easier to enforce but usually have a lower value. On the other hand highly flexible rights, while adaptive to changing markets and technology and thus more valuable, are likely to have higher transaction costs - especially given the range of externalities applying to interference management in radiocommunications.
23. In specific response to the Government Policy Statement, the DTI next commissioned a substantive study. The underlying objectives of the study, as specified in the terms of reference, were:
    1. To maximise economic efficiency in usage of the spectrum within New Zealand
    2. To examine the scope for achieving a financial return to the Crown
    3. To evaluate and recommend practical and equitable options for implementation of an allocation and management regime
24. Speaking at a TUANZ conference in August 1988 on the forthcoming deregulation of telecommunications and broadcasting, a senior DTI official commented on competition and spectrum issues:

'New Zealand's approach will be to rely primarily on our competition law to discourage our dominant operator, Telecom, from anti-comprtitive behaviour, particularly in setting the terms and conditions for interconnection to its bearer networks. The Government's view is that, on one hand, industry-specific rules, and regulatory authorities, have inherent disadvantages, and on the other that out competition law is robust and effective'.

'Until the consultants study is completed at the end of October, and the Government has had time to reflect on it and make decisions, we are not going to be able to inform you exactly how frequencies will be allocated in the deregulated environment. The issues involved are particularly complex involving difficult economic, engineering and legal issues. We are pioneering in this area, and have few overseas precedents to guide us. Almost certainly however you can expect that the Government will want to move away from the present system of first-come first-served administrative allocation, which cannot cope with the deregulated environment, to some sort of market based system.'

Footnotes

²⁴ 'Telecommunications In New Zealand - The Case For Reform', New Zealand Business Roundtable, November 1987.

²⁵ Page 98.

²⁶ 'The Economics Of Radio Spectrum Management', Dr John Fountain, ISBN 0-477-05961-9.

²⁷ Time (term of rights), Area (geographical boundary) and Spectrum (range of frequencies).