Mobile phone fiasco puts the spotlight on government's secret policy process

By Nick Stride

Friday 7th December 2001

Amid allegations of dirty tricks, backroom deals and special interest lobbying, government policymakers are again manning the ramparts.

At issue is an abrupt and unexplained u-turn on mobile communications granting access for a Maori-Zimbabwean joint venture to Vodafone's billion-dollar-plus network.

While industry groups and policy analysts are split on whether the changes are in New Zealand's interest, Vodafone, politicians and some business groups are dismayed about a perceived lack of clarity, consultation and disclosure surrounding the passage of the Telecommunications Bill.

With the bill clear of its second reading in Parliament it is expected to be put to the vote and become law within the next few days.

The bill had its genesis in last year's telecommunications ministerial inquiry, a marathon process with which nobody had any argument.

The inquiry recommended roaming - access for the users of one network to a competing network's coverage where necessary - and cellsite co-location - the ability for players to attach their equipment to existing cellular masts - should be forced on incumbents.

The government didn't agree, partly because it accepted officials' advice that the benefits of regulation wouldn't outweigh the costs.

The Telecommunications Bill went to the commerce select committee in May. No form of regulation for the mobile sector was included.

In the meantime, the government had sold a slice of third-generation (3G) mobile spectrum to Maori interests. A Zimbabwe-based wireless operator, Econet, bought Northelia, the successful bidder for second-generation spectrum in the latest airwave auctions.

During June and July the Maori interests' commercial arm, Hautaki Trust, and Econet made common cause. Hautaki sold its 3G spectrum to Econet, taking in return a 30% stake.

They developed a plan to start a third 2G mobile service and hired Wellington law firm Chen & Palmer to lobby for their cause.

Both made submissions, which the committee, "for reasons of commercial sensitivity," heard in secret. Others, including existing mobile players Vodafone and Telecom also made submissions.

As the original bill didn't mention roaming or co-location, Vodafone's submissions didn't address that issue, regulatory affairs manager Asia-Pacific, Peter Stiffe said.

But it is now clear that regulation had reappeared on the government's agenda.

On August 8 Richard Tait, a senior advisor on telecommunications policy at the Ministry of Economic Development, gave the committee a supplementary report on the subject.

The officials advised that "the status quo remains the best option as it is likely to be least damaging to investment intentions."

Whether negotiated roaming agreements would occur without regulation was uncertain, they said. Vodafone had never been approached for an agreement.

Vodafone for its part says it has never been approached by Econet/Hautaki for a roaming agreement. It has maintained throughout that it is willing to negotiate access for anyone to its network, on commercial terms.

As for co-location, the officials said evidence suggested agreements could be negotiated without regulation.

At that time the industry remained unaware regulation was under consideration at all. Vodafone found out on September 7, during a meeting with Communications Minister Paul Swain and Heather Simpson, an adviser to Prime Minister Helen Clark, that the government had decided roaming and co-location would be "specified" - that is, made obligatory for the incumbents.

The committee was split evenly on the issue between the four government members and the opposition members. Mr Swain announced on September 18 the changes would be put through Parliament by means of a supplementary order paper.

As The National Business Review goes to press the issue is before the House. In the absence of a revolt by coalition members it will become law within the next week or two.

What caused the government to change its mind on mobile regulation between May and September remains unclear.

NBR this week asked the government to explain what evidence or analysis had convinced it mobile regulation was necessary after all.

Acting Communications Minister Trevor Mallard's reply said the government believed mobile regulation was in consumers' best interest. He said roaming and cellsite access "will be critical for a new mobile operator" but he gave no reasons for the change of government policy between the bill's introduction in May and the regulation announcement in September.

Vodafone, and Act New Zealand's Muriel Newman, suspect they know the answer.

During the committee process, replies to Dr Newman's parliamentary questions have revealed Mr Swain regularly met committee chairman David Cunliffe to discuss progress. He also met Econet's Tex Edwards and Chen & Palmer's Colin Keating, a former secretary for justice, and, on September 5, the government's Maori caucus "to discuss issues relating to mobile services and the Maori Spectrum Trust."

The committee agreed to receive in secret, on June 20, submissions from Econet's local arm, Northelia, and from Hautaki Trust in support of their argument mobile access should be regulated in their favour.

These contained a variety of allegations about Vodafone that the carrier has since labelled "untrue, misleading and seriously damaging." It says those allegations "may have and seem to have" affected the committee's report to Parliament.

(It is worth noting that during August NBR was twice anonymously sent documents making allegations about Vodafone very similar to those made to the committee. NBR took them up with Vodafone and was satisfied with the company's response.)

Vodafone was unaware, until September 24, that any submissions about it had been made. On receiving them it complained to the committee's chairman, Labour's David Cunliffe, and to Parliament's Speaker, Jonathan Hunt, that it had been denied natural justice in being kept in the dark about the allegations that had been made against it.

It received on November 2 a reply from Mr Cunliffe inviting it to respond to the committee on Econet/Hautaki's allegations.

"We must stress," Mr Cunliffe wrote, "that this is not an opportunity to reopen the more general policy debate as the Telecommunications Bill is no longer before the committee."

Vodafone's Mr Stiffe says the carrier is unable to make sense of the government's about-face, particularly as there have been no commercial disputes over roaming or co-location.

"The telecommunications commissioner [to be appointed next year] will have powers, after following tests and procedures, to specify or designate any services," Mr Stiffe argues.

"The government has pre-empted the commissioner. In doing so it seems to have adopted a lesser standard of proof to show there is a need for regulation."

Act's Dr Newman says the government made its policy decision despite officials' advice and without the analysis to support the regulatory impact statement (RIS) required before policy is adopted.

Mr Swain announced the government would regulate on September 18 but his response to Dr Newman's questioning shows the cabinet didn't consider the RIS until November 5.

Dr Newman said the government was right to suspend the spectrum auctions last December so bidders could consider its regulatory stance following the inquiry's report.

But mobile telecommunications investors then made bids, and submissions on the bill, on the strength of the government's public no-regulation stance, she said. They had been ambushed by an about-face which had been presented as a fait accompli .

Not everyone thinks mobile regulation is a bad thing in itself.

Tuanz, the telecommunications users' umbrella group, says the government's decision "will almost certainly lead to extra choice and lower prices for cellphones."

Chief executive Ernie Newman said the government excluded mobile regulation from the original bill, against the ministerial inquiry's recommendation, in response to strong lobbying from Telecom and Vodafone. It should not be deflected "by heavy-handed pressure from those with a vested interest in maintaining a position of advantage," Mr Newman argued.

Paul Budde, a respected Sydney-based telecommunications analyst, said the government had to step in with regulation if New Zealand was to develop a "knowledge economy." "For the first time in 15 years the government has done something; it's a can-do government," Mr Budde says.

But regardless of whether consumers are best served by mobile regulation the manner in which government executed its policy u-turn worries business leaders.

Business New Zealand chief executive Simon Carlaw admitted he hadn't followed the bill's passage closely "but I have some disquiet about the apparently arbitrary nature of the decision-making here.

"It doesn't seem to be a transparent process and that's a worry for everybody."

Business Roundtable executive director Roger Kerr argued there was no justification for the government bypassing the Regulatory Impact Statement safeguards.

"Operators have commercial incentives to deal with new entrants on mutually acceptable terms. There is no case for government intervention to benefit new entrants at the expense of incumbents," Mr Kerr wrote in an October 5 letter to Prime Minister Clark.

"The implications of this for prospective investors in such assets in the New Zealand economy are quite disturbing, the more so because new welfare-enhancing technologies will require significant investment."

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