Smith Lockwood: Telecommunications Amendment Bill — Second Reading In Committee Third Reading 
Smith Lockwood: Telecommunications Amendment Bill — Second Reading In Committee Third Reading 
[Volume:636;Page:7131] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 The National Party will be voting for the Telecommunications Amendment Bill. I must say that working on the Finance and Expenditure Committee on this legislation has been an interesting exercise because the bill that Parliament now debates is very different from the bill that the Government first introduced into Parliament. 
This issue is controversial. Really the whole argument around whether the local loop should be unbundled as it is colloquially referred to has been in front of Governments going back at least a decade or more. Members may recollect that a lot of controversy surrounded the introduction of this bill when what the Government proposed to do in order to unbundle the local loop was leaked. Within days of that leak a couple of billion dollars was wiped off the share price of Telecom New Zealand so the Government’s handling of this matter has not been perhaps the most clever that it could have been. Certainly ordinary New Zealanders lost an awful lot of their personal asset—their personal wealth if you like—through the way the Government handled this matter with almost $2 billion I think being wiped off the share value of Telecom New Zealand. I must say that I have no shares in Telecom New Zealand so that did not affect me personally. 
The fundamental issue around the unbundling of the local loop or in other words giving competitors access to the copper wire that links most New Zealanders to their nearest exchange has been controversial for many years. The evidence around the value of unbundling or giving competitors access to that copper wire is mixed. The select committee heard a fascinating submission from one of New Zealand’s foremost academics in the area of competition law who went through most of the evidence from around the world where the local loop had been unbundled and talked about the impact on the uptake of broadband and on access to modern communications technology. I will never forget one of the key issues that came out of that academic presentation to the select committee and it came from more than one person. The bit that sticks in my mind is not so much the detail of whether the evidence clearly showed that local loop unbundling has worked in this country or that country and has not worked in others but the bit that showed that the greatest advances happen when we have competition between communication platforms rather than competition within a platform. 
I say that because I want the Minister to reflect on that point and I want the Government to keep in its mind that this legislation leads mainly to intra-platform competition. The local loop is one platform compared with say wireless technology. So when we talk about the copper wire in the local loop it is a platform as distinct from wireless technology which is another platform. One of the arguments in the past has been that by not unbundling the local loop we would build stronger competition between platforms—between say wireless technology and copper wire—and therefore we would advance access to communications technology most effectively. 
Having said that the Government has made the decision to unbundle the local loop and I hope that a lot of research will be done by our academic institutions on how that affects the advance of communications technology in New Zealand. The interesting issue as we look ahead will be the extent to which it brings focus on to intra-platform competition or in other words competition using the technology of the old copper wire which most telephones and most computers are linked up to compared with advancing the competition between wireless technology and the old technology of copper wire. The answer to that is unknown. 
I stress that National supports this legislation. But we acknowledge in doing so that it is unknown what effect this legislation will have on those two hugely important factors in advancing competition in communications technology: whether it will give too much emphasis to competition within a platform—in other words competition on the old copper wire—compared with competition between platforms. There are of course all sorts of issues around the property rights that Telecom had taken off it but I think those arguments have been and gone and we have to look to the future. That is why we are prepared to support the Government on these moves. But in acknowledging that as we look ahead we must make sure that that issue is thoroughly researched in order to ensure competition is most effectively advanced by this legislation and therefore the access of New Zealanders to the very best communications technology is advanced most effectively by it. 
The interesting thing about the process of this legislation was that the Government made the decision to unbundle the local loop and in the bill that it introduced to try to bring more transparency to Telecom’s operations by requiring an accounting separation so that people could see quite clearly that competitors were being given appropriate access to the local loop. As it transpires the select committee has gone much further than that. The legislation that this Parliament now debates is far further down the track of transparency than the original version of the bill envisaged. Beyond having just an accounting separation this legislation now gives effect to an operational separation of Telecom. 
In supporting this legislation I want to make it clear that National was happy to support the operational separation of Telecom but that National members drew a line in the sand and said we would not support the structural separation or the break-up of Telecom. We insisted that the Government remove that sword from over the head of Telecom because while the threat of structural separation remains in the picture Telecom’s value is severely compromised. I want to make sure that the Government members of this Parliament realise that this bill provides for operational separation not structural separation. The Government must not threaten Telecom with structural separation unless it wants to deprive hundreds of thousands of New Zealanders of the value they own in Telecom. If we threaten Telecom with structural separation we will strip value out of Telecom. 
I want to make sure that Government members who have not been involved in considering this legislation are aware of the seriousness of that issue. National drew an absolute line in the sand there. We will support operational separation but we will not support structural separation. We want members of this House to be fully aware of the potential damage to New Zealand’s biggest company to our major telecommunications company if the threat of structural separation is not taken right off the agenda. 
Let me make it very clear what is meant by operational separation. The select committee has proposed that Telecom should operate in three sections: one being access to its network services the second being the operation of its essentially wholesale services and the third being its other services which include largely retail services. How we were to give effect to that then became a critically important issue Were we to try to write into legislation the detail of the operational separation? I argued strongly at the select committee based on my 9 years’ experience as a Minister about the way that it should be implemented—about the preparation of the operational separation plan. 
There was some debate at the select committee about whether the Minister—in other words the Government—or Telecom should write the separation plan. I argued very strongly personally that Telecom should draft the separation plan because only Telecom knows the detail of how it can be given effect. But the legislation makes sure the Minister has ultimate control over it. The Minister has the ultimate power to make sure the draft plan is written and the Minister can give directions as to what should go into the draft plan. 
Personally I consider section 69AAD “Main requirements for separation plan” and section 69AAH “Preparation of draft separation plan” in clause 32 to be quite well drafted. I take some credit for arguing strongly as to the balance between Telecom and the Minister in relation to those provisions. I think the balance in the bill is good. Given that the decision has been made to progress operational separation I think the way the legislation is drafted makes sense. It has the right balance between the requirements on Telecom and the ability of the Minister to have ultimate control over the process. 
This is major legislation. National happily supports it but we want to make sure that members of the House are aware there are unknown issues as we look ahead. We must monitor the competitive situation to make sure that the interests of all New Zealanders are advanced as far as possible by this legislation.