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Private monopolists do not last forever

This week's bombshell announcement from Telecom NZ highlights how monopolies, especially private ones, do not last forever.
Written by Darren Greenwood, Contributor on

This week's bombshell announcement from Telecom NZ highlights how monopolies, especially private ones, do not last forever.

Times change, technologies change and the winds of competition blowing through an industry, especially the tech sector, mean that companies come and go and restructure. There's always constant change, choice and competition.

Barely a week ago, we had Telecom asking the government to further ease statutory regulations against the company, such as requiring it to separate the business.

Telecom said forcing it to make such moves threatened the reliability of its services, a view that has won some industry support.

But in its big announcement on Monday, Telecom accepted that it was in its own interest to split up the business, especially if it wanted some of the government's juicy Ultra-Fast Broadband pie.

In an age of choice, where people can pick and mix the services they want from a range of suppliers, it becomes clearer why the company thought it better to divide to help it conquer.

As telecommunications expert Chris O'Connell explains:

"I think Telecom's problem is that vertically integrated companies work fine when you had a monopoly [but] the problem these days is that people can put together their own combinations of services to meet whatever needs they have and it's very hard for [Telecom] to do that competitively."

The split should allow Telecom to compete better.

Much of the criticism Telecom gets and the regulations it faces stem from it being seen as greedy and a rort, a view that might have had some justification in the past.

But private "monopolies" do not last forever. Even the act of a monopolist obtaining "rental" or "excessive" profits just fuels new entrants into the market.

We have seen this with the mobile phone market, which now has three operators in New Zealand.

And last week we saw Telecom lose another monopoly, its Southern Cross Trans-Tasman cable.

Pacnet's partnership in the Pacific Fibre consortium delivered an impetus in a plan for a 13,600km cable linking Australasia and the US.

It led to the State-Owned Enterprise (SOE) Kordia to drop its own Trans-Tasman cable project.

Listen to what its boss had to say about the effect his planned OptiKor cable had on the market.

"Just the threat of competition has caused a dramatic reduction in the cost of international bandwidth out of New Zealand, so you could say to some extent, it has already been successful and a more ambitious project with connectivity all the way through to the US looks likely to get off the ground. Overall, I think it's a good news story."

So, as long as there is deregulation in the market, and entrants are free to come and go, monopolists, especially private ones, do not last forever.

Either the monopolist rips people off, which leads to new rivals, or it behaves responsibly, and does what it takes to gain and remain in business, which leads to free competition and an open market where the consumer still benefits.

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