Cunliffe David: Telecommunications (TSO Broadband and Other Matters) Amendment Bill — In Committee 
Cunliffe David: Telecommunications (TSO Broadband and Other Matters) Amendment Bill — In Committee 
[Volume:673;Page:19571] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 In the Committee stage of the debate on the Telecommunications (TSO Broadband and Other Matters) Amendment Bill we are looking at Part 2. I will do that firstly by recalling very briefly the structural context of the policy the focus on the ultra-fast broadband connections. I will then go through the key issues that are raised in the new Part 2A and in Part 2 and then look at Supplementary Order Paper 247. I hope members will bear with me as hopefully I go through that in a reasonable logical way.  
The first level is the strategic context of what is trying to be achieved in this bill. The Government was elected with a mandate to roll out fibre to the homes of 75 percent of the population using a promise of $1.5 billion of Crown subsidy or so it seemed. It turned out that it was not a subsidy; it was an investment at a commercial rate of return. That caused some issues because the industry responded that it was not possible to roll out that much fibre to that many people for the amount of money the Government was offering given that it wanted to make a profit on it through Crown Fibre Holdings. The Government then took nearly 3 years to go through contortions to work out a way of watering down the regulatory framework to the point where the market or at least one player in the market would find that it could make enough out of the regulatory change to supplement the meagre offering from the Crown.  
The Crown in this case as in other cases was essentially selling the framework—selling the law—in favour of whoever won the contract to enable it to make higher levels of profit. I forgot although I have done before to give some credit to Sir Roger Douglas who at the Finance and Expenditure Committee got the officials to put a number on that. It was $400 million to $600 million of additional subsidy through regulatory dilution.  
The select committee debate turned on a number of issues which we will not rehearse in this part of the Committee stage. Principal amongst those issues one of probably half a dozen key issues was the so-called regulatory forbearance period—the regulatory holiday—which meant that the Crown’s regulator the Commerce Commission would simply be unable to look at unbundled fibre contracts ultra-fast broadband contracts for a period of 8½ years from the implementation of this bill. This of course got the whole industry up in arms and the Minister for Communications and Information Technology Steven Joyce was standing in a very lonely minority of two with the other one being the incumbent telecommunications company Telecom.  
The industry was deeply worried that the whole regulatory framework would be set backwards. So indeed it has proven to be. Data released just recently showed that New Zealand is cascading down the international broadband ratings. Having clawed its way up in the preceding 5 years it is collapsing again really tumbling down the rankings. It is no surprise that in the 3 years it took Steven Joyce to make up his mind as to which way was up and to get a bill to the House New Zealand has been on a broadband plummet. It has been USB—“ultra-slow broadband” or at least an ultra-slow bill—coming to this House.  
Then of course there was a bit of sleight of hand on the regulatory forbearance period. The Maori Party members either by waking up after the select committee process was over because they did not often turn up and did not say boo to a goose when they were there— 
The CHAIRPERSON (Lindsay Tisch) 
: I remind the member that we are on Part 2. This is not a critique of what has happened in other parts. Part 2 is very specific: it inserts new Part 4AA. That is what we are on and that is what I ask the member to come back to. 
Hon DAVID CUNLIFFE 
: My information is that Part 2 covers the regulatory forbearance period and that is exactly what I am talking about. In discussions between the Maori Party and the Minister it was apparently struck out. 
The CHAIRPERSON (Lindsay Tisch) 
: I have mentioned that Part 2 has nothing to do with the Maori Party and I ask the member to come back to Part 2. 
Hon DAVID CUNLIFFE 
: The regulatory forbearance period which was at the heart of Part 2— 
Hon Christopher Finlayson 
: He’s not nearly as smart as he thinks he is. 
Hon DAVID CUNLIFFE 
: I am not nearly as nasty as that little Minister on the far side. What a nasty little man he is. He cannot get through a debate on an unrelated bill without making nasty little comments in the Chamber. Shame!  
The regulatory forbearance period was at the heart of Part 2 and it is intriguing that it was struck out of the bill after discussions between the Minister of Communications and Information Technology and the Maori Party. What is intriguing is that the Maori Party did not appear to take a position on that issue at all during the select committee process and it voted with the Government at every point. It is intriguing that it should have changed its position subsequently. The question has been asked publicly whether the Maori Party was in fact invited to change its position by a Minister who realised that he was isolated in public opinion and wanted a way off the lonely branch that he was on. Whether or not that is the case I guess we will never know for sure. The public will never know for sure and that is precisely the point: this has not been a good legislative process.  
This has not been a good process. This has been a process of inadequate transparency with last-minute legislation having been rushed into the House and rushed through a select committee process and then a very substantive Supplementary Order Paper—we are looking today at Supplementary Order Paper 247—was brought to the Committee of the whole House to make late amendments that the select committee did not consider. The industry and the public were not invited to submit upon these amendments and this Committee is now being asked to give a judgment on such matters without the benefit of hearing submissions from the industry. The issue is that these changes are very long-lasting changes. They go to the heart of the intelligent infrastructure of this country; they will last a generation of human time and five to 10 generations of information and communications technology yet we are being asked to do this job without having had an adequate select committee consideration.  
I will just take a dive down to several of the related issues. As my colleague Clare Curran has said the open access regime is at the heart of this. I will cover two parts of it. Firstly what replaced the regulatory holiday? The regulatory holiday was obviously outrageous. To take the Commerce Commission off the job for a decade was never in common-sense terms going to be a starter. But to replace it with an indemnity by taxpayers’ funds to the profit of the incumbent entity has to be adding insult to injury. Not only is the competitive framework of the industry done grievous bodily harm by this legislation but also the incumbent gets a taxpayer-funded “get out of jail free” card. Labour’s position is that we will restore regulatory oversight and it will then be a matter between the Commerce Commission and all players in the industry as to how they fare under the appropriate regulatory purview. If they have to have compliance measures or if they face penalties then that is a matter for them.  
On the open access regime it means that service providers would allow retailers non-discriminatory access on what should be as my colleague Clare Curran has said an equivalence of inputs basis. That means the same stuff is produced at the same price in the same way so that there is zero possibility of vertical integration and discrimination between the component parts of Chorus2. Why have I said Chorus2? Because I agree with the Minister and the Government that those issues between the retail business—what is called Telco2 or “Newco”—and Chorus2 are now less important. The problem now exists in Chorus2 between the wholesale and network access layers—the main backbone of the system—because we do not have equivalence of inputs at all layers. We do not have it at layer zero or layer one on fibre and that means discrimination is possible between internal parts of Chorus2.  
The Supplementary Order Paper talks about the discontinuance of accounting separation in the proposed new clause 23GDC. We had accounting and functional separation between the two key boxes that now reside within Chorus2: the access layer and the wholesale layer. Those bits have been brought together without appropriate transparency regulatory oversight or arm’s-length provisions and that puts the wholesale end of the industry at risk.  
I will put that in really simple terms for the public. If they are buying telecommunications services from a provider other than Chorus that provider will have to have bought those services wholesale from Chorus at a price that we now have no guarantee will be a fair and equitable price between other parts of Chorus and the rest of the market. In other words the citizen—the punter if you like; the account holder—whether purchasing at that wholesale level or passed on down to retail may well be paying too much. The dominant wholesaler now cross-subsidised by this Crown investment may well find itself able to make super-normal profits at the expense of the consumer.  
In other words within Chorus it will be a return to the darker days. There is a very very great deal of concern in the industry.