Douglas Roger: Telecommunications (TSO Broadband and Other Matters) Amendment Bill — Second Reading 
Douglas Roger: Telecommunications (TSO Broadband and Other Matters) Amendment Bill — Second Reading 
[Volume:673;Page:19303] 
Hon Sir ROGER DOUGLAS (ACT) 
: 
 At the last election the Government blindly promised to invest in New Zealand’s telecommunications infrastructure—in particular in ultra-fast broadband. It was a blind promise because National had no evidence that such an investment was needed or would produce promising outcomes. We are 3 years down the track and there is still no evidence that this initiative will benefit New Zealanders. 
The Telecommunications (TSO Broadband and Other Matters) Amendment Bill sees New Zealand embarking on a modern form of Muldoon’s Think Big project. Under this bill the taxpayer will end up spending $1.5 billion on a gamble. I cannot condone such reckless spending; nor can Heather Roy. The remaining ACT members believe that this was a fundamental election promise made by our coalition partners and will therefore vote for it. This bill is a gamble because we simply do not know whether it will bring any benefit whatsoever to New Zealand. There is a total lack of a cost-benefit analysis to justify spending taxpayers’ money. As is the case with all significant interventions the onus is on the Government to show that the investment of taxpayers’ money is warranted and is beneficial to New Zealand. 
There has never been a wide economic analysis done by Treasury on the bill. This bill has been driven by a political imperative rather than an economic one. The lack of a cost-benefit analysis means that the information is not present for anyone to make an informed decision. To embark on major infrastructural development based on very little economic analysis is reckless at best. In the absence of such analysis it is difficult for any side to determine whether there will be a real return to taxpayers. I ask members which is more extreme: National which is willing to spend taxpayers’ money in times of economic hardship with no cost-benefit analysis or politicians who seek fiscal restraint in times of economic hardship and require sound evidence to justify Government spending programmes. On this point alone I urge the House not to support this bill. 
The reality of the telecommunications industry in New Zealand is that it is a network industry. Therefore it is inevitable that the Government has some role to play in regulation. The issue is whether this bill enhances the goals that we as New Zealanders would like to see in the telecommunications industry. The central goal that we are concerned with is enhancing efficiency in the industry. Does this bill seek to further this end? Put simply it does not. 
There are two major reasons in support of this conclusion. First the Government is once again looking at entering into the telecommunications market with both money and heavy-handed regulation in order to try to actively pick future technology winners with taxpayers’ money. New Zealand and Australia are guinea pigs in going down a Government-determined ultra-fast broadband path. That alone should worry us. There may be a case for Government involvement as it is a network industry but this bill imposes a singular future on a complex industry. 
The central difficulty with Government investment in this area is that there is a need for significant investment coupled with a high commercial risk. The development and use of ultra-fast broadband in the future is not a fait accompli; if it were the risk calculus would heavily favour private investment. It is possible that the next generation of wireless networks could potentially deliver the speed of ultra-fast broadband and on that basis alone some of us do not consider that ultra-fast broadband is necessarily the future of the telecommunications industry in New Zealand. If the Government is wrong and technological developments favour other ways to provide the internet then there will be a large opportunity cost for New Zealand. The opportunity cost is borne out in two ways. First in a static sense $1.5 billion has been invested in a way that has a low return. If the money was left in the hands of private individuals they could seek out more productive investments leading to greater prosperity for New Zealand as a whole. Second in a dynamic sense there is an opportunity cost for future development in the telecommunications industry. 
The bill means that New Zealand companies have been artificially incentivised due to the Government subsidy to invest in the roll-out and development of a technology that may become increasingly irrelevant. This might be particularly true for the Fibre to the Home aspect. This approach will see us down the road of path dependency. Once the network has been built path dependency will ensure that it keeps on being used and developed because the fixed costs will be much lower. This occurs because the set of decisions that one faces in the future is limited by decisions made today. This hinders the long-term development within the telecommunications industry to the detriment of us all. 
Second it may be that this investment will produce low-value return for New Zealanders. It is unclear whether New Zealanders are utilising telecommunications infrastructure to its capacity at present. The Motu Economic and Public Policy Research Trust has done the only empirical work in this area and it concluded that faster broadband speeds are likely to have a negligible impact on the New Zealand economy. Again such investment is extreme on the part of National. The little evidence there is suggests that we should not invest. 
The heart of the problem is that there is not enough information at present to determine whether this project is a waste of money. The Government has moved quickly to implement an election promise and has not been able to produce the evidence that favours support for the proposal. If we are going to spend $1.5 billion I would rather see greater emphasis given to efficiency and competition within the telecommunications industry. For this to result from current policy I suggest we would need to create a situation where we have true open access and the development of our network by new consumers taking up the service. This means that the costs involved are met as they sell to consumers. This would be akin to the way Sky television boxes have been distributed. This would maximise competition without the need for heavy-handed regulation. The Government has said that without a regulatory holiday broadband initiatives will cost at least another $400 million. There is so much uncertainty about the regulatory surroundings that it may well be desirable to spend that $400 million up front in order to get rid of the regulatory holiday and to allow for greater competition in the future. This is a problem that I faced in the steel industry in the 1980s. I found it better to pay $2 billion up front so that we could get rid of the large tariffs that were impeding competition in the industry. 
The second point I make is that we should abolish telecommunications service obligations requirements for Telecom. My first and second points are not mutually exclusive. This would allow costs to fall where they should which would end the practice of cross-subsidisation from urban to rural areas. In addition it would force other technological developments to solve the problem. It is not clear that there is a good case for mandating any form of universal service. As part of this I also advocate getting rid of the Kiwi share and free-calling requirements. 
This bill has not been well-thought-out. We have an election promise and that is what this is all about. In terms of any studies that have been done the indications are that the money will be largely wasted.