Telecommunications (TSO, Broadband, and Other Matters) Amendment Bill

I am pleased to take a call on Part 2 of the Telecommunications (TSO, Broadband, and Other Matters) Amendment Bill. I will address an issue that lies at the very heart of the Act within which this bill resides and the principle upon which it should rest, which is the principle of competition for the long-term benefit of the end users, or consumers, who are the people of New Zealand.

I will make some remarks on Part 2 before I get into the substance of it and talk about the amendments that Labour is putting forward on this part in respect of competition and the concept of investment. First of all, when investors come to this country they should know a couple of things. The first is that their investment is welcome and that the environment they are investing in is sound and stable, because the regulatory and legislative environment is based on the sound principle of competition for the long-term benefit of end users. Secondly, investors should know that in this country there is an expectation that corporate interests are not put higher than consumers, service, and affordability, and they should know that they are not put lower, either. They should also know that competition is critical, because in the telecommunications market we need rigorous competition in order for it to be successful. I hope that during this debate a reference is made to the importance placed on this principle by the previous Labour Government. The Digital Strategy sat within that principle and the Telecommunications Act arose out of it.

One thing is missing from this whole debate, and that is the other side of the equation. If the Minister in the chair, the Minister for Communications and Information Technology, takes a call at some point during this part, I would like to hear his views on the reasons why people connect to high-speed broadband. Although I suppose some voicing has been given to this issue, not a great deal of substance has been given to it during the whole of the 2½ years of discussion about ultra-fast broadband and about this network’s roll-out. We have to ask why people will connect to it and what will drive them to make that decision. It is called content, which is the important issue; the demand is what people can use the high-speech broadband connections for, and what will motivate them to move to make that switch from copper to fibre. The Minister, as I said, has not seriously addressed this issue. He does not appear to be hugely interested in that bigger vision, and he is strangely silent on any consideration of how the content industry might fit into it and what the regulatory environment might look like in that content industry, unless, as could be feared, it is about cementing the way for further monopolies in the content sector as well.

New Zealand can realise its potential as a nation of technological innovation only if our population is digitally literate and has clear pathways into future education and high-wage, high-skilled jobs. The traditional broadcasting sector is transforming and merging with what has been called a telecommunications and information and communications technology sector. We do not have a new term for that sector yet; it is known around the world as convergence. It still has not really been named, other than being described as the digital environment. The fact is that the two sectors are coming together. Increasingly, content in that digital environment is crossing the technological platforms. Traditional broadcasting as we know it is now rapidly becoming obsolete, and the digital environment is the future.

“Content” describes the creative material that New Zealanders produce—not just in New Zealand, obviously—and it is delivered in that digital environment across all mediums. It includes films, programmes, news, current affairs, music, games, etc. It is delivered via all those platforms, whether the platform is television, radio, the internet, or print, and it will be successful only if people choose to access it and see its potential for the future. To do that, people will need access to quality of content, diversity of content, and adequate competition. That goes to Part 2, and to the importance of providing and making sure that real competition is involved.

Before I carry on, I will mention one of the important amendments to Part 2 that Labour has put forward. It will amend new section 156AD in clause 24 by substituting subsection (2), and it goes to the importance of what is called the equivalence of inputs. I will talk about that in a minute, but essentially it will allow that competition to occur on the network itself, on the platforms on which the content resides. We say that competition should be allowed to occur from the outset, rather than from 1 January 2020. That is a long way away, and in this environment, where the technology is changing so rapidly, the ability to have that competition both at the network level, on the delivery of the platforms on which the content resides, and also in the content industry—traditionally known as the broadcasting industry—is so important. Therefore, the industries should be looked at as one, rather than as two. The discussion that we are having about broadband and the roll-out of broadband should also include the content industry. That is what is missing from the discussion in this debate.

I will go specifically to the open access regime, about which Labour had a number of comments to make in its minority report on the bill before us. We consider that the open access undertaking provisions for ultra-fast broadband are severely flawed, as they explicitly exclude price and non-price terms for bottleneck services. The limited form of Commerce Commission oversight was discussed at great length at the Finance and Expenditure Committee. We believe that what has been provided for in this bill is not a true substitute for a real open access regime. The undertaking provisions do not require service providers to achieve equivalence of inputs, which is the standard that is currently applied to Telecom. As a result, there is a real risk that a service provider could provide itself or individual access seekers with better ultra-fast broadband services and more attractive prices compared with others. That is one of the reasons why Labour is opposing this bill.

Open access is a core issue. It goes to competition, it goes to the ability of real competition to occur, and it goes to the fear that lies at the heart of Labour’s opposition, which is that there will be monopolistic practices and the ability for price gouging to occur, and there is history. There is history in this area, which we can outline in detail for the Committee, and I hope to do so later on. As a result, as I said, there is a real risk that the service provider could provide itself or individual access seekers with better ultra-fast broadband services and more attractive prices compared with others. That behaviour would be anti-competitive, and under this law there is not any remedy to challenge it until 30 December 2019.

That is why we have put this amendment before the Committee today. We think there must be sufficient incentives for service providers to comply with undertakings. That is why we put forward an earlier amendment, which was voted down in the previous part of this bill, on the penalties that can be made.

The history of Part 2 of the Telecommunications (TSO, Broadband, and Other Matters) Amendment Bill is illustrative of the poor process that the Government has been running. The Finance and Expenditure Committee considered the legislation. Various parties, including the Labour Party, were concerned at the suggestion that the Commerce Commission would have no jurisdiction following the passage of Part 2, which inserts new Part 4AA into the primary legislation, the Telecommunications Act. Considerable pressure was brought to bear through the media, which said that it was quite unwise of the Minister for Communications and Information Technology to contemplate an absence of regulatory oversight of this new area of undertaking.

Labour wrote to the Minister and said that we needed to talk about this matter. We wrote a very reasonable letter, I thought, expressing our concern and asking for a response from the Minister, which we never got. We then wrote again to say that it was time we got a response. It was by then too late, by the design of the Minister, to make amendments at the select committee, so the bill was reported back with these inappropriate provisions that said there should be no regulatory oversight. The Commerce Commission was precluded from doing things that it could otherwise do.

The Minister then said publicly that he would back away from those provisions, I suspect partly because there was doubt as to whether he could pass them in this House because concerns were being expressed not just by Labour and the Greens but also by the ACT Party and the Māori Party as to whether what was being proposed by the Minister was wise. We then thought we would get to a reasonable place where we would have some regulatory oversight, post these new arrangements.

I have no problem with long-term contracts being entered into with Telecom. What I have a problem with is, effectively, the ouster of any jurisdiction that could look at whether what will then be the dominant player is abusing its position in a way that is not in the interests of competitors or consumers. So I was then surprised to hear that the amendments set out on the Minister’s Supplementary Order Paper 247, would remove some of those offensive provisions relating to the ouster of the jurisdiction of the Commerce Commission. But then we were told—and we have yet to see—that similar-effect provisions are being inserted into the contracts themselves.

I ask the Minister in the chair, the Minister for Communications and Information Technology, to take a call on whether, as we have seen in news reports, an indemnity is proposed to be given in the contracts with Telecom that indemnifies Telecom for all losses that might be occasioned to it as a consequence of future regulatory action. These things may have been misreported in the newspapers, but I am not in a position to judge whether that is the case; I have not seen those contracts. But if there is an undertaking that the Crown will indemnify Telecom in respect of all of those risks, then I ask the Minister to justify that.

If the Minister cannot convince this House to pass legislation to oust the jurisdiction of the Commerce Commission—and some jurisdiction is left with the Commerce Commission—then why does he think it is right that in the contract he can effectively override what would be the statutory provisions by providing for a contractual term to the same effect? If that is the effect of what is being proposed, then I expect some of the competitors of Telecom are considering whether the Minister actually has the power to do that. It would be very surprising to me that Parliament would not agree to effectively oust the jurisdiction of the Commerce Commission but that the Minister could have such broad powers that he could do just that by contract. Even if that is right as a matter of law, then I ask how that could be right as a matter of principle—that the Minister could by contract give an indemnity in respect of those matters.

There has been some misrepresentation of Labour’s position on this bill. It has been suggested that Labour would break contracts. We have not said that. What we have said is that we would review the regulatory regime to make it clear that the regulator has the right to assess according to sound and standard regulatory practice whether the conduct of Telecom—and, indeed, the conduct of the Minister, given that the Minister has said he will try to take these contracts beyond the law—breaches fair regulatory standards, and that if it did, then the consequences would flow according to that legislation. That is not the same thing as Labour saying that we would break the contract. We are not saying that. We are saying that the regulator should have the power to regulate monopoly excess. If there is no monopoly excess in the future, no one has anything to fear.

I again stress that this is not to say that long-term contracts are inappropriate. Long-term contracts are necessary in order to give contractual certainty to the parties in respect of these important capital investments that they are making. Indeed, the long-term interests of consumers already pay regard to the fact that one can have long-term contracts that are in the long-term interests of consumers. So I want to hear from the Minister why he does not think it is now appropriate to have legislation that ousts the jurisdiction of the Commerce Commission to give a remedy to consumers who might be abused by uncompetitive monopoly practice. If he is of that view—presumably that is why he has removed these provisions from the bill—then how can it be appropriate for him to do the same thing, in effect, by contract?

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 Māori 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.

My information is that Part 2 covers the regulatory forbearance period, and that is exactly what I am talking about. In discussions between the Māori 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 Māori Party, and I ask the member to come back to Part 2.

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.

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 Māori Party. What is intriguing is that the Māori 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 Māori 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.

I take a call to answer a few of the issues raised in the debate so far on the Telecommunications (TSO, Broadband, and Other Matters) Bill. Firstly, the equivalence of inputs issue that was just raised by the member David Cunliffe is important, but it is important to note that in terms of the two layers he talked about, there is a non-discrimination requirement within Chorus between layer 1 and layer 2, which is being monitored and enforced by the Commerce Commission. It is a good story, I say to Mr Cunliffe, but it does not actually hold any water.

The full equivalence of inputs is not required until 2019, for a number of reasons. I will run through them for the member’s benefit. Firstly, there is a lot of debate internationally in this new environment—and I stress that it is a new environment—in relation to the technical methods for unbundling of point-to-multipoint fibre. It is still being worked through internationally, and implementing it currently would add very significant costs to the build.

It is fair to say also that the demand for unbundled residential services is uncertain. In fact, if we unbundle layer 1 at this point, we may end up creating another monopoly, because of the way the electronics work. I had quite a discussion with the former UK telecommunications Minister Lord Stephen Carter, whose view was that layer 2 was probably the appropriate approach at this point to get the best competition outcome. That approach has been followed a lot internationally. Requiring unbundling at 2020 will give local fibre companies and industry sufficient time to develop an appropriate unbundling solution for this part of the network.

The member missed a number of other points. Firstly, I find it difficult to be brought up by Labour members on this matter, because it took them about 7 or 8 years to get to the same point with operational separation. We will not even talk about mobile termination rates, which they went on about at great length before they eventually handed the issue over to another Government to do something about.

In terms of rewriting history, I also listened to Mr Parker’s discussions about regulatory forbearance, which I think is important. He said Labour had sent a letter to the Minister, got no response, sent another letter, but it was too late. That is not correct, as Mr Cunliffe and Ms Curran know, because there were a number of discussions. The regulatory forbearance issue was very difficult for everybody, and the reason I know it was difficult for Labour members was that I actually asked them to come up with a solution that would help to solve the problem. They borrowed from one of the industry lobby groups a solution called special access undertakings, and they said that was the answer. But when we had a look through it, we saw that it either achieved nothing or achieved exactly the same outcome as regulatory forbearance.

I accept that we made the change at a late stage, but the reality was that nobody had the answer until we came up with it in consultation with the Māori Party. It is an answer that will keep the Commerce Commission on top of those price issues, notwithstanding the fact that it is not likely to have any impact, given the very competitive prices. It will also provide a mechanism that will allow investors to invest and offer lower prices than they would otherwise be able to offer. I thank Māori Party members for their support on that. They had a singular focus on keeping prices down for consumers. That was also our focus. It was about balancing those objectives.

It is a public-private partnership. I remember that members of the previous Government had a view that they would like to have public-private partnerships, but never actually got around to one because they could not understand how the partnerships worked. One has to provide some certainty to investors to enable them to offer good prices and good conditions so that consumers get the benefit, and that works very well.

I go back to address a couple of the issues raised by Ms Curran. Firstly, I would love to talk all day about content and demand, but I note for her reference that it is out of scope for this section of the bill. It is also important to note that the open access regime is very much in place and, perhaps for her benefit, I note that forbearance has been removed, which should save some time later on in the debate.

It is very important we get the regulatory framework right. I believe we have done so. I always think it is amusing that Labour members want to take more time over everything but then criticise us for how long it has taken. It is a very good deal, it is supported by a large majority of New Zealanders, and I think it is very exciting. The parties in the Chamber who are supporting this bill understand the importance of ultra-fast broadband for New Zealand. Thank you.

I understand we are debating Part 2 of the Telecommunications (TSO, Broadband, and Other Matters) Amendment Bill, and that is what I will address. It is not particularly my forte, but I want to talk about the international obligations of telecommunications regulatory frameworks, which I do know something about—at least, I understand the international obligations. I will talk about those with reference to two things in particular, but I will come to those in due course.

I acknowledge that I was not on the Finance and Expenditure Committee, which dealt with this legislation, so I come to it perhaps with the advantage of fresh eyes, but when I look at the bill in front of us now I see that it is clearly a dog’s breakfast. Most of its text has been struck out and replaced by other things in the course of the select committee process. There is more striking out and more underlining—which indicates new insertions in this bill—than one can shake a stick at. I am not persuaded that even with all of these amendments that have come through the select committee process, we have made this bill the best it can be.

I will pick up the comments my colleague the Hon David Cunliffe made a moment ago in respect of the regulatory forbearance period, which was struck out—and rightly so. It was rightly struck out after considerable effort on the part of Labour members on that select committee, who fought alongside industry representatives to ensure that that forbearance period, that regulatory holiday, was removed from the legislation. But I am not persuaded that what we have is a vast improvement.

The two areas I will address in particular are New Zealand’s international obligations under GATS, which of course is the General Agreement on Trade in Services, and under our free-trade agreement with Australia and ASEAN, known as the ASEAN-Australia-New Zealand Free Trade Agreement, because international obligations exist for a regulatory framework to apply in the rolling-out of ultra-fast broadband. This may come as a surprise, and perhaps it came as a surprise to the Minister for Communications and Information Technology, which is why, under Labour’s pressure, he realised that the forbearance period was not tolerable and not sustainable. But I come to the fact that some advice that was available to the Minister, members of the select committee, and officials has been set aside. APEC has developed a document called APEC Best Practices for Implementing the WTO Telecoms Reference Paper. This, as it describes, sets out best practice. It essentially reflects the General Agreement on Trade in Services communications commitments. The document is not binding in international law, and I readily concede that. It is not binding, but it is about best practice.

A number of questions the select committee had were referred to the Ministry of Foreign Affairs and Trade, particularly to the trade law unit that is part of the legal division of the ministry, which does the close analysis of legislation to ensure that New Zealand meets its international obligations. My question to the Minister, given the dog’s breakfast of a process surrounding this legislation, asks whether he can guarantee to this Committee and to consumers of telecommunications services—

The CHAIRPERSON (Lindsay Tisch): I will call the member again, but I must ask you to come back to the part—Part 2. It is quite narrow. I ask you to come back to Part 2.

Thank you, Mr Chair; I am of the view that I am discussing things that come out of the insertion of new Part 4AA in Part 2. It is that part that triggers these concerns about international obligations, because the part goes to the obligation, the rights, and the responsibilities of the Commerce Commission to be the independent regulatory body that our World Trade Organization (WTO) obligations require. There should be an independent regulatory body—no, I might have to correct that: the obligations may not require it but they certainly recommend it.

I go back to my question, which asks whether the Minister can guarantee that New Zealand is implementing best practice in this regard. There are parts in this Part 2 that the Commerce Commission has regulatory oversight over after a period of 8½ years, but is this in fact best practice? Why has the Ministry of Foreign Affairs and Trade, in its advice, said to the committee that as the APEC document on best practice “only concerns consistency with New Zealand’s international obligations, it is not considered further here.”? I am not sure that the Minister is able to reassure the Committee that this legislation not only complies with the detail of our obligations, both under GATT and under the ASEAN-Australia-New Zealand Free Trade Agreement, but also represents best practice for the regulatory framework surrounding the roll-out of ultra-fast broadband services to New Zealand consumers. I would like the Minister to take a call and respond to these concerns, because it is not plain from Part 2 either that our obligations are being met or, even better than that, that we are doing the best we possibly can, considering that we do like to pride ourselves on being at the forefront of the recognition and implementation of international obligations.

The regulatory holiday was struck out in a secretive and cloaked manner, and I am not persuaded that the process in relation to that was the best it could be. I consider that too many either unanswered or inadequately answered questions still surround this legislation, particularly as it relates to those areas with which I am familiar, which are the World Trade Organization and free-trade agreement obligations.

Finally, I speak in support of my colleague Clare Curran’s amendment to new Part 4AA, inserted by clause 24, to add new paragraph (c) to section 156AD(3), which has the effect of ensuring that the Crown alone will bear the costs of any significant changes made to pricing. Here we come back to the potential for the Commerce Commission to have adequate oversight of, and to operate as an independent regulatory body for, the best possible delivery of what are becoming increasingly essential services for all New Zealand consumers. Thank you.

Firstly, I would like to come back and thank the Minister for Communications and Information Technology for taking an earlier call on the Telecommunications (TSO, Broadband, and Other Matters) Amendment Bill, and to pick up on some of the key points that he made about non-discrimination, regulatory forbearance, and point-to-multipoint services. I then wish to take up a couple of matters in relation to the Kiwi share replacement by the telecommunications service obligation covered on Supplementary Order Paper 247 in the name of Steven Joyce.

On non-discrimination, the Minister rose to his feet to say the Opposition failed to understand the matter, because non-discrimination applied at both layer 0, which is the ducting, and layer 1, which is the dark fibre. The Minister is strictly correct, but he is telling only half the story. Non-discrimination applies at those layers, but equivalence of inputs, the gold standard in the industry, does not—at least it does not to ultra-fast broadband fibre within the first 10-year period. I hope that the public can now be very clear about what is and is not covered. In other words, the gold standard applies only to the downstream services, not to the ultra-fast broadband fibre, and the lower standard, which is simple non-discrimination, applies across the lot, which is what the Opposition has said from the outset.

Secondly, on the regulatory forbearance period, it is quite clear now that the Supplementary Order Paper repeals only part of it, not all of it as the Government had initially said it would. This proves again what an opaque and difficult, shadowy process there is. As we said earlier, this matter was not reported to the Finance and Expenditure Committee; it was not put out for public scrutiny. What is interesting, of course, is that this emerged from a discussion between the Government and the Māori Party, behind closed doors.

💬 Sandra Goudie: What’s shadowy about it?

One of the shadowy things is that it is not clear whether the Māori Party got what it was asking for, which was the removal of regulatory forbearance, apparently. This Supplementary Order Paper, which I doubt the member has even read, does not actually remove all the regulatory forbearance provisions, only part of them.

The bill as introduced contained certain undertakings. To quote from the explanatory note on Supplementary Order Paper 247, “This Supplementary Order Paper removes regulatory forbearance from the Bill as introduced but retains an explicit restriction on the Telecommunications Commissioner recommending unbundling of point-to-multipoint layer 1 services.” The Minister, to his credit, did amplify that in his remarks. He amplified it by underlining that he was moving at an ultra-fast pace and these things would last until 2020. Good Lord! Until 2020? It is 2011 now, and that is another 9 years of restriction, the reason for which has never been made clear. The Minister might say he has had a private conversation with a former British Minister. I do not know whether that former Minister was speaking in an official capacity, in a private capacity, or in the capacity of someone hired by an industry participant or lobbying firm—I do not know what capacity it was in. It is quite common for former Ministers or MPs to be hired by well-heeled telecommunications companies to persuade other Ministers of the merits of the companies’ cases. But, again, this has emerged only in the debate on the Supplementary Order Paper, which has been rushed to the Committee and has not had select committee consideration. It is part of a dismal legislative process.

The next issue, of course, that has emerged only in the Supplementary Order Paper is the Kiwi share obligation. To the public out there, the Kiwi share obligation was the golden share left in Telecom to guarantee the public’s rights when Telecom was privatised 20-odd years ago. It was changed, in part, to a set of contracts or deeds, the minimum service standard, which we called the TSO, or telecommunications service obligation. But several critical aspects were left in the law, not in the deed. The first was that a minimum amount of Telecom had to remain in New Zealand ownership: that only 49 percent of it, I think, could be owned—

The CHAIRPERSON (Lindsay Tisch): I am looking very closely at the bill. The member is referring to the Supplementary Order Paper. The Kiwi share obligation is not in Part 2. I ask the member to come back to discussing Part 2. If he wishes to speak about the Supplementary Order Paper, it must relate to Part 2.

💬 Clare Curran: I raise a point of order, Mr Chairperson. With respect, the point of Part 2 is to address the replacement of the regulatory forbearance period with a new regulatory arrangement—

The CHAIRPERSON (Lindsay Tisch): It has nothing to do with the Kiwi share obligation—absolutely nothing. Stick to Part 2.

Mr Chairman, you are quite correct that the substantive provisions appear in a different part of the bill. But the point I was making, on behalf of the Opposition, was that the process around the introduction of the change to the Kiwi share obligation was by tabling Supplementary Order Paper 247, which was not referred to a select committee. That was identical to the process around the point-to-multipoint services and the amendments to the regulatory forbearance period.

I will speak on Part 2 of the Telecommunications (TSO, Broadband, and Other Matters) Amendment Bill. We are talking about the undertaking relating to networks developed with Crown funding as part of the Ultra-fast Broadband Initiative. There are many concerns with regard to this bill. My colleagues David Cunliffe, Clare Curran, and Maryan Street have talked about them, but I will narrow it down a little bit.

First, I want to say that—and we are talking about section 156AD(2)(ab) and (b)(iii), as inserted by clause 24—we are talking about 1 January 2020. We are talking about 8½ years away. Kids in kindy today will be in high school when this is rolled out. Labour will be preparing for its election to a fourth term. Steven Joyce, who will have been leader, will have been rolled by Amy Adams, who will then have been displaced by Aaron Gilmore. We are talking about a time so far into the future that it is hard to take this matter seriously. This was one of the Government’s major election promises, but we are talking about 2020.

💬 Sandra Goudie: What’s that got to do with this part? Is that member talking about the bill?

I will miss Sandra Goudie when she retires next year, because she asked what this has got to do with the bill. Well, if we look at section 156AD(2)—perhaps Mr Joyce would like to go and talk to her—we see the words “provide for the LFC to supply unbundled layer 1 services on all parts of its fibre-to-the-premises access network on and after 1 January 2020;”. This goes to the heart of the bill, I tell Ms Goudie. I think she should stay on. She should tell Scott Simpson that no, she wants to come back, because we would love to have her back. She is great for the Labour Party, so please stay.

There is something else I would like to talk about as well. We are talking about 156AD(2)(c), which states: “provide for the LFC”—this bill is full of these acronyms; an LFC is a local fibre company—“to deal with the UFB partner on arm’s-length terms”. But then it says, in brackets: “(unless the UFB partner and the LFC are not separate entities);”. I would have thought that that provides a bit of a conflict of interest, and I would have thought that there is a real risk that a service provider could provide itself or individual access seekers with better ultra-fast broadband services and more attractive prices compared with others. There is a slight conflict of interest, I would have thought, if the ultra-fast broadband service provider and the local fibre company are, in fact, the same entity. The bill provides that they can be the same entity. There is not enough information here.

Let us talk about paragraph (d) of this section, which states: “provide for disclosure of relevant information to the Commission, to support the Commission’s assessment of compliance”. Again, what does “relevant information” mean? It is quite a broad term; it is often used in bills in Parliament. I normally would not ask about this, but the Minister and the Commerce Commission have been at such loggerheads all the way through the this bill, and all the way through this whole process, that I am slightly sceptical that the Commerce Commission and the Minister will actually be able to work in a constructive way to deliver on this part of the bill. That is what I have grave concerns about, because the Commerce Commission has actually come out and said numerous times that it did not agree with very fundamental parts of this bill. In fact, that is one of the reasons why, once upon a time, the major part of Part 2 was withdrawn. Mr Joyce understands that; he finally listened to reason. I suspect that Mr Key said to him: “Steven Joyce, you’ve got to get rid of this. This is so inequitable that it has to go.” He probably got a lot of pressure at those cocktail parties with his telecommunications company mates. That is just conjecture, of course.

I come to section 156AF. Again, this legislation is quite prescriptive. This is quite a large bill. We are talking about section 156AF, which sets out what the Minister must and must not do, and what everyone has to do. It is headed: “Minister may determine further requirements for undertakings”. After being incredibly prescriptive, the bill then says that if the Minister wants to add anything else, he can. Why do we have the rest of it if it is up to the Minister’s discretion? Why did we not just get a small bill, about 5 pages long, which says the Minister can do whatever he wants? In essence, this bill allows the Minister to do pretty much what he wants. “The Minister may determine further requirements with which an undertaking must comply.” I wonder whether the Minister actually has in mind any further requirements and undertakings that he thinks he may want to throw into this. Is this provision just in case he has not got it down pat, or is it because there is a cunning plan here to sneak something in under the radar? That would not be the first time with this bill.

We come to section 156AG, “Minister may issue and consult on draft determination”. But in that section, “may” was changed to “must”. I think the drafters actually picked this up, and they have changed “may” to “must”. It cuts to the heart of the argument in relation to this bill. There are so many “mays”. A “must”, in my view, signifies a legislative requirement. Here we go: “Before making a determination under section 156AF, the Minister must prepare a draft determination and consult on that draft”. It used to read “may”; it used to read “the Minister may prepare a draft”, but someone, in their wisdom—no doubt it was Clare Curran or David Cunliffe, both of whom went through this bill with a fine-tooth comb—finally said we should hold on a second, because there was too much discretion for the Minister. Let us be honest about this: by the time this comes in, Steven Joyce will have come and gone as a Minister. Who knows who the Minister will be? It will probably be Clare Curran, actually. There are so many “mays”; there is so much ambiguity here, and it is so wide that we could drive a double-decker bus through it.

Section 156AG goes on to state: “must prepare a draft determination and consult on that draft with those persons that the Minister considers have a material interest in the determination.” Again, we have to ask how the Minister will consider those who have a material interest in this matter. On a lot of this bill the Minister actually did not consult those who our team and I would have thought actually had material considerations. In fact, the Minister totally ignored Commerce Commission advice on this. It says here he must consult, but it does not say he must listen. I suppose the Minister can write a letter, send it out to whomever, and say that as part of the conditions of this bill he has to send a letter, and if there is anything the recipients want to talk about, they should send it in.

When we look at section 156AJ, which is under the subheading “Process for submission and consideration of undertakings”, we see a whole lot about the fact that local fibre companies “may” submit undertakings for approval by the Minister, and, in section 156AK, the fact that the Minister “may” approve or decline undertakings. Again, the wording around “may” or “must” is quite significant. Let us not underestimate this point. As mentioned, if the provision said the Minister must approve or decline undertakings, then he has a legislative requirement to do that. I am talking about section 156AK, “Minister may approve or decline undertakings”. I ask the Minister whether he sees any conditions, or any sort of obligations, under which he may have to approve or decline undertakings, or whether this provision was just thrown in as open-ended legislation in order to do whatever he wants when anything arises.

When we come—I am jumping all over the place here—to section 156AD(2A), we are talking about resolution: “An undertaking may specify a mechanism for resolution,”. I would have thought, at least when it comes to conflict resolution, that the legislation would say “An undertaking must specify a mechanism for resolution,”. It goes on: “by a suitably qualified and experienced independent person, of any disputes that arise between the LFC and access seekers after the undertaking is approved.” Why would the House not want to specify that if there is a dispute between a local fibre company and an access seeker, a disputes resolution must be set up? The bill just says “may”, which just leaves it completely open. Dr Wayne Mapp, as someone with a PhD in law, must look at this legislation and think: “Goodness me. Thank God that’s not my bill, because I wouldn’t have drafted something as open-ended and ambiguous as that.” I tell Dr Mapp not to worry.

💬 Chris Hipkins: I wouldn’t count on that.

That is true. Maybe that is why he is leaving. Maybe he did draft this bill; I am not too sure. I tell members that it really is a bit of a dog’s breakfast.

We are not just talking about any legislation here. We are talking about legislation that will split up the State monopoly. I would have liked to see this legislation be a lot tighter, and for it to have legislative intent to require the Minister to set up these entities.

I will take a quick call to summarise several of the issues that have been raised in respect of Part 2 of the Telecommunications (TSO, Broadband, and Other Matters) Amendment Bill, and to look at the consequences of the change that has been proposed and the delay that has occurred. The two key issues relate to the regulatory forbearance period, and the question of how it was removed and the extent to which it was removed; and the effect of the so-called open access regime, and whether it is, indeed, open access at all layers and all places, which it is not. I will also look at several of the other clauses in this part. I particularly want to note the effect of undertakings and the application of the pecuniary penalties.

Starting from the top, I say the regulatory forbearance period has not been fully repealed. It went to the Finance and Expenditure Committee and had universal condemnation from the industry. The Māori Party was silent and voted for it, but after the bill went back to the Minister, the Māori Party either changed its mind or had its mind changed for it. The Minister needed a way out of being a minority of one, so the regulatory forbearance period was changed in Supplementary Order Paper 247. That amendment has not been to the Finance and Expenditure Committee, and has not been discussed by the industry or the public. But it was not, as the Government said, a full repeal of regulatory forbearance. The Commerce Commission is unable to adjudicate certain aspects until 2018—

💬 Clare Curran: 2019.

—until 2019; my colleague corrects me. That just reflects the shadowy, opaque nature of this process, where deals have been done in the back room and show up in the fine print. The public of New Zealand know to their bones that that means their interests are put at risk by the corporate sharpies cutting deals behind closed doors, and in the fine print that nobody can understand. People have been there before. They saw Maurice Williamson give the industry the wet bus ticket for 10 years as the “Minister for Telecom”, and it looks like the son of Maurice Williamson is sitting in the chair as the Minister for Communications and Information Technology. He has aged prematurely, but the son of Maurice Williamson is sitting in the chair, presiding over—in fact, designing—a new wet bus ticket for the fibre age. Here in this bill is the wet bus ticket. It is half of a wet bus ticket on regulatory forbearance.

On the open access regime there is a lovely sense of irony—

💬 Hon Christopher Finlayson: 9 years and you did nothing.

I hear the Attorney-General squeaking in the back row. What a lovely sense of irony. I am sure he would not have put that title on this measure, because it is not an open access regime at all. It is somewhat open in respect of Telecom retail, but it is anything but open in respect of the crucial dark fibre layer of the network. Right here in the bill are the provisions stating that for some part of the open access network, equivalence of input—the gold standard—applies, but we do not get the gold standard for the crucial dark fibre layer until 2018, 2019, and 2020. Instead we get the watered down version called non-discrimination. What are the consequences of that? Firstly, the undertakings that are already in place for the functional separation between the three boxes of retail, wholesale, and access go. That does not, I agree with the Minister, matter very much at the retail end, because it is replaced by structural separation, but there is no structural separation between access and wholesale. There is no structural separation on the core of the network, and that is where the public’s interests are put at risk.

What is the cumulative result of, firstly, the Government’s ultra-slow process, and, secondly, this ultra-risky bill? Since 2008, when the Government changed, New Zealand has slipped on the download speed scales from 12th to 21st in the OECD, on connection speed from 12th to 24th out of 30, and on subscriptions from the seventh cheapest to the fourth-most expensive in the Western World. That is the real, tangible price of the ultra-slow broadband processes that are vested in this bill by this Minister. Now, on the eve of the next election, the Minister brings to the Chamber Supplementary Order Paper 247, which he could not get organised in time to put to the select committee. He tries to squeak it through before the election so he can say he has done something. New Zealanders have been waiting 2½ years for the Minister to come up with a policy, and he has come up with something that, in crucial respects, is about as strong as dishwater.

I move, That the question be now put.

I thank the Minister in the chair, the Minister for Communications and Information Technology, for taking a call on the Telecommunications (TSO, Broadband, and Other Matters) Bill. I am very pleased that he got to his feet and talked to us about some of the issues that have been raised, and in particular about the importance of equivalence of input as a concept. It is a pity that that concept is not reflected in the bill we have before us tonight in a real open access regime.

I will address the amendment that the Labour Party has put up to amend new section 156AD(3), inserted by clause 24, by inserting a new paragraph. That amendment basically addresses the issue of the indemnity of Telecom in the contract. Essentially, it prevents, and puts restrictions in the way of, the Crown indemnifying Telecom and placing the risk on itself. I will give some very good reasons for this amendment, which some of my colleagues have touched on today. They go to the heart of this bill, and they are to do with true competition, and with putting the long-term benefits of end-users at the heart of the legislation.

This bill is the biggest telecommunications change that has happened in this country for a long time, and perhaps ever. It involves, as my colleague Stuart Nash said, the split-up of the State monopoly. It is yet to be determined how that split will occur. The said company, Telecom, is very silent at the moment. It cannot speak, because of the separation that is under way.

I will address that issue briefly in respect of the amendment that I will put forward today, which relates to the Crown taking the risk. When we look at how that split takes place, we do not yet know how a three-box model will turn into a two-box model, and which bits will end up in the new Chorus2. There are also questions about what the impact on the Crown will be if the pricing situation does not work, and if the Commerce Commission decides that the pricing is not right and that it needs to intervene. If the Minister of the day is forced into a situation of agreeing with that decision, the Crown then takes the risk. The Minister has freely said in this Chamber and at the Finance and Expenditure Committee that no analysis has been done of what that risk might be. There has been no ability for the public to scrutinise it.

I will read to the Committee some figures from Telecom’s annual report for the year ended 30 June 2010. It talks about Chorus’ earnings before interest, tax, depreciation, and amortisation, which was $754 million. That is Chorus; that is the infrastructure level. Then there is wholesale and international, which is $226 million, and Telecom’s retail arm, which is $396 million. If a good swag of the wholesale and international end up going into—

The CHAIRPERSON (Lindsay Tisch): The points the member is making are out of scope. The member must come back to Part 2.

This matter goes to Part 2 and the amendment that Labour is putting up around the indemnity to the Crown and just what that indemnity will involve. If we end up with a separated Telecom that is almost, at least, two-thirds of Telecom, which is what it looks like it will be, then that separated company does not have sufficient scrutiny by the independent regulator. First, how will that separation occur, and, second, how will the open access regime operate in that environment? That is why, when we look at clause 24 and the amendment that Labour is putting up, we see that the risk to the Crown is even greater.

Why is there indemnity to Telecom in this area? Telecom is a company that has a track record of price gouging and anti-competitive behaviour. I have gone to the trouble of finding out and listing some of those breaches that I think are relevant and important to this debate. The public of New Zealand need to know that the Crown will give indemnity to the new monopoly that is being created in case of future price issues for which there might need to be regulation. Any costs of those price changes will be borne by the Crown in some form or another. That form is yet to be determined because there has been no public scrutiny of that provision. It was introduced at a very late stage, after this bill was brought back to the House.

That is why I think this Committee needs to know what it is up for, what this new monopoly will look like, and just how much of a free ride that monopoly will get under this legislation. The Committee needs to know why investor certainty is being put up as the most important thing to consider, before the interests of consumers or taxpayers, when we are talking about the Ultra-fast Broadband Initiative and the bill that is before the Committee.

Let us remember that $1.5 billion is tied up in this scheme overall, and it is taxpayers’ money. It is taxpayers’ money, and the taxpayers of New Zealand need to feel that it is accountable. We know that it is being looked at. It is being looked at quite hard from outside. There are serious concerns around the impact of the anti-competitiveness of the arrangement. In just the last week we have seen more admissions of errors with Telecom and with how people are being charged. I put on the record that it is not unusual in the telecommunications sector anywhere in the world for there to be errors, blunders, and breaches, for those breaches to be taken into a civil court, and for fines to be made. But I look at the history in this country of the monopoly incumbent: it has breached the system and it has been found guilty. The sheer number of them—and I will mention just a couple of them, because there have been some very significant cases in recent years. I have a list of cases where it has been fined for failure to disclose costs—

The CHAIRPERSON (Lindsay Tisch): Order!

This goes to the heart of the amendment that Labour is putting up around the need for the indemnity of Telecom to be rescinded and for there to be a requirement that the Crown not indemnify Telecom in this legislation. Investor certainty is not the only consideration. Consumer confidence, fairness, and competition are other values that need to be taken into consideration. I see the Minister is shaking his head, and I would be very happy if he wants to leap to his feet and share with the Committee why Telecom needs to be indemnified and how he came to the decision that that was going to happen.

As I understand it, a clause—and he might like to enlighten me and the Committee on this—has also been inserted into the Rural Broadband Initiative that indemnifies Telecom and Vodafone against their non-ability in case they are not able to perform the requirements. They will not incur costs. Explanation of that clause would be useful as well, because the indemnity of the companies involved in the broadband environment is not the paramount issue. Somehow it has ended up that that is the case.

I will mention a couple of these breaches. They go to the heart of why we need to put up this amendment to clause 24. It ensures that the Crown alone does not bear the costs of the ability of Telecom to change its pricing structure if the Commerce Commission decides to intervene in the future between now and the end of 2019. In 2003 Telecom pleaded guilty to fair trading breaches.

I move, That the question be now put.