UFB, TSO and disrupting the telco industry: Joyce reflects

UFB, TSO and disrupting the telco industry: Joyce reflects

Part one of Q and A with ICT Minister Steven Joyce

Steven Joyce was named ICT minister following National’s victory in 2008 and he quickly set about transforming the telecommunications industry. Last week he took half an hour out from his schedule to visit Computerworld in Auckland and reflect on his tenure in the telco portfolio. When you came into this role, National had made this promise of $1.5 billion for broadband infrastructure. Three years later, what do you think you’ve achieved?

I’m very pleased and humbly proud because it was actually a really challenging policy and to get it sorted in such a way that’s going to give consumers good results. It’s not too hard on taxpayers which is always the risk with these things. And it’s going to create a competitive industry model; I think it’s all we could have hoped for really.

Really, all you could have hoped for?

I’m thrilled with it.

You’ve transformed the industry, you’ve shaken it up and disrupted it and it’s not the same industry you came into three years ago. Do you think that’s fair?

I think it’s changed. But I think we’ve also, from my point of view coming into this role with Transport, we’ve sought to take care because these are very important industries. So yes, there’s been change. I think it’s very much been improved in terms of the structural settings and the fact that we now have this investment, I think overall it’s a big step forward.

If you said to me three years ago, could you get it like this I would have said ‘gosh that’s going to be tough.’

What is especially pleasing? The structural separation of an incumbent telco, it’s never been done anywhere in the world before...

It hasn’t been done yet of course, there are a couple of steps to go.

It’s well on its way.

I didn’t set out for that, because I really feel quite strongly, as much as possible, that those are decisions for the companies involved and they could decided that it wasn’t worth the call – just compete, it would have been a viable option for them [Telecom], perhaps. That could have happened. So really if you looked at it, there were two possible outcomes – one is two competing networks, one copper-based and one fibre-based, and the other is a single infrastructure player with competition at the retail level.

Either could have happened and either would have been a good outcome but I think the advantage of this outcome is that it really does tie in the previous investment alongside the government investment going forward. So it’s probably economically the most efficient outcome but I think it could have happened either way.

By that do you mean the previous investment that Telecom’s put into Fibre to the Node?

Yes, and of course you’ve got the most knowledgeable player Chorus, in terms of the New Zealand environment partnering for 70 percent of it. Those things are all plusses. But you couldn’t make those a requirement and I never would because then you would have ended up with Hobson’s choice and that would have been a very difficult position for the Crown to get itself into.

There is infrastructure competition in Christchurch, central North Island and Whangarei, how is that going to play out? It seems weird to have most of the country with one single operator and small parts with others.

It’s not that weird because at the end of the day TelstraClear did that, rather it was Saturn in Wellington and Christchurch. I don’t think it’s weird.

For those that are focused on tidy minds they might say that it’s not as tidy as it could be, but that’s the whole point of the competitive process and having partners and I think having all three of those other players involved will strengthen the consortium of players around the infrastructure.

Northpower do things in a very interesting way and they’re getting results on a pretty efficient basis. Having lines companies involved does bring another fresh set of eyes into it and of course the Enable guys have done a great job in Christchurch. So I think it adds to the strength of the offering overall.

Can you see Chorus coming in and taking over those companies? They’ve expressed an interest in partnering.

I don’t know, Chorus have expressed an interest in partnering with those companies but they will make those decisions, you can see some sense in that. But the beauty of it is, is that it works either way, so I’m prepared to let that unfold.

Let’s switch to rural, because you also had a challenge with the TSO, it’s been kicked around the industry for ten years, so I guess you’d say you’ve slayed that dragon too?

I think we’ve got that one under control and because what we’ve effectively done is say ‘OK, that’s going to be allocated on behalf of the industry in a competitive environment’ and so yes, everybody said it was for the maintaining and extending of rural infrastructure, well now we all know definitely it is with the Telecommunications Development Levy.

I’m really pleased with that because one thing before we were elected we probably underplayed the rural side and I think it was just a matter of time.

As an opposition party we put so much effort into the UFB that there was sort of like ‘here’s some money set aside for rural’ and we’re not quite sure how it will play out. That was truly developed in government, that whole exercise, and I think it deals with a number of issues including the whole issue of how you maintain and extend rural infrastructure.

Some people would challenge the fact that the incumbents – Telecom and Vodafone – got the contract.

That’s always amusing because, with respect, that tends to be those that are involved in the sector in some way and they have either positive or negative relationships with incumbents.

But if you ask Bob the farmer or Michelle the farmer in a particular part of the country, they’ll just be keen to know that they’re going to get much faster broadband and that a reliable company, someone that knows what its doing, is going to deliver it.

At the end of the day that’s what they’ll be concerned about, and the price they pay.

Part of changing the TSO was opening up Telecom Retail to foreign investment. It’s going to be treated like a TelstraClear or a Vodafone (if shareholders vote for demerger). What are we seeing in terms of new investment in telecommunications in New Zealand, could you see Telecom Retail ending up in foreign ownership? Is that a concern?

Firstly I don’t believe the ownership of Telecom Retail is a concern and it would be entirely inconsistent if we did. Because how would it be an issue for Telecom if not Vodafone?

The concern everybody’s expressed is infrastructure and I can understand that.

Sometimes with infrastructure things that make sense from the shareholders perspective, don’t necessarily make sense from a country’s perspective. So while shareholders legitimately take, if they want, a reasonably short term approach to capital expenditure — and some would argue that’s what happened for some time at Telecom — and yet in a national sense that may or may not make sense.

I can understand the desire to have the infrastructure owned close to the location because then they will live in the country and will be responsive to pressure.

Having said that my view of it is is that there’s a great opportunity for New Zealand shareholders in the two companies. I’m not going to go any further than that because I’ll get accused of saying things about the stock market.

Utility shares can be really good things to own in a broader sense, in fact some of our big utilities like Port of Tauranga, the number of domestic shareholders is growing currently and the number of international shareholders is decreasing and I think in a broader sense we’re seeing a shift in people to invest in solid assets in the country rather than say, finance companies. There’s no reason that shouldn’t happen in the telco space as well.

Tomorrow Steven Joyce gives his view on what telecommunications will look like in 10 years time, and discusses whether Sky TV should be regulated.

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