Thursday, May 04, 2006

John Armstrong: Labour must be feeling relief after extracting sore tooth

The "unbundling of the local loop" - the quaint euphemism for forcing Telecom to allow competitors access to its home and business phone lines - has been the political equivalent of extracting a very sore tooth.

The issue has been nagging away at the Government for so long that there must have been a sense of relief among ministers around the Cabinet table yesterday at actually having done the deed, at least as far as broadband is concerned.

There is still going to be a lot of squealing. Sizeable shareholders in Telecom will be spitting. Market purists will be bleating about what they will decree to be a raid by the state on private wealth. There will be predictable warnings about sending the wrong signals to foreign investors.

Labour should hold its nerve. Long-time Telecom shareholders have benefited financially many times over from the shambolic privatisation of the former state company in 1990.

Not only was Telecom sold too cheaply, it went on the block without a proper regulatory framework being established first to ensure the telecommunications industry would be truly competitive.

The Government can justify the opening up of Telecom to more competition on simple, common-good grounds.

Ministers will rebut criticism of "regulatory creep" by arguing the new regime will still be less interventionist than regulatory frameworks in other countries and that the move will increase competition, not limit it.

The biggest political danger is that the policy will not work. Officials have warned that it will take "some time" to create a more competitive market for broadband and that there might even be a short-term dip in the sector's performance.

However, that is also an argument for delaying no longer.

Labour's longer-term difficulty is to find additional but not so immediately obvious policy gems to make good on its promise of "economic transformation" - the key thrust of its third term.

Yesterday's announcement is the first element of that agenda to see the light of day as frantic policy development continues to find more such initiatives to lift the New Zealand economy out of reliance on high international prices for agriculture-based commodities.

However, improving broadband uptake had been foreshadowed by the Prime Minister for months. The announcement begs the question "what next?"

It also appears the announcement was to have been showcased in the Budget, now just two weeks away. That was kiboshed by the leaking of a Cabinet document within hours of the Cabinet decision, which forced the Government's hand late yesterday afternoon.

Michael Cullen had been warning it was going to be a boring Budget. But then he always says that. There will now be a mad scramble in the Beehive to find something to fill the vacuum and prove him wrong.

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