When regulation goes too far

Summary:As a tech journalist, you soon learn the view of the "end users" who make up your publication's readership; typically, the IT manager or CIO.

As a tech journalist, you soon learn the view of the "end users" who make up your publication's readership; typically, the IT manager or CIO.

Not only is that business reader likely a consumer of ICT, but they will also often be a shareholder in it. Given the fact that they probably own shares in the ICT businesses reported on, what happens to the share price also matters. And if regulators do something to affect this, you quickly realise that there are two sides to every story.

On one hand, regulators are consumer champions, protecting the masses from being exploited by greedy, fat-cat capitalists.

On the other hand, regulatory intervention destroys shareholder value, and damages companies, especially if businesses and entrepreneurs feel that they cannot make much of a buck anymore.

Thus, a recent New Zealand Commerce Commission (ComCom) recommendation that the government should force Telecom offshoot Chorus to slash its charges for copper access is big news from several angles.

First, it will affect demand for copper wire broadband access, and may even undermine the business case for fibre, and the government's own Ultra-Fast Broadband (UFB) initiative.

But also of concern now is the impact on share prices and the wider public investment in the markets.

The proposed intervention spooked the markets, especially with Chorus being a recently created spin-off from Telecom, driven by government. Since the government effectively created Chorus, it should be happy with it, but the fact that it apparently isn't came as a shock.

Financial experts warned that such regulatory uncertainty is economically damaging, and some blog writers were particularly angry about it.

But such criticism will not stop ComCom, which this week also announced an inquiry into Sky TV, something that also hit Sky's share price.

It may be that Sky is dominant, and does not always do what's best for the consumer, but consumer lobby groups need to look at the other impacts from regulatory intervention than merely the end effect for consumers.

They also need to consider the views of those economists who argue that monopoly profits attract entrants to a market and drive innovation.

Governments need to respect the property rights of shareholders, especially when larger companies like Chorus will have many shareholders.

When the last Labour government unbundled the local loop, the value of Telecom dropped by between $2 billion and $3 billion, hitting the savings and pensions of millions of ordinary "mum and dad" investors.

To paraphrase Maude Flanders on The Simpsons: "Won't somebody please think of the shareholders!"

Topics: Government, Government : AU, New Zealand, Telcos

About

Darren Greenwood has been in journalism, not all of it IT, since the days of typewriters and long before the web spun its way around the world.Coming from Yorkshire, he can be blunt, and though having resided in New Zealand, as well as Australia, for quite some time, he insists he is not one of the 'sheeple!'

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