Bronwyn Howell

Broadband Diffusion: Lags from Vintage Capital, Learning by Doing, Information Barriers and Network Effects

This paper examines the factors that affect the uptake of broadband in the residential and SME markets. We searched the economics literature on diffusion theory and identified five different models that potentially provide insights into the broadband phenomenon. These models were applied to the New Zealand market using detailed product and market data from an index ISP and the major telecommunications network provider which we consider representative of the market as a whole.We find evidence to suggest that the adoption of ADSL the dominant broadband technology in New Zealand is driven differently in the residential and SME markets. SMEs pay a fixed fee for each telephone circuit plus a toll tariff for all calls including local calls. An SME with multiple computers accessing the Internet requiring multiple telephone lines or with a reasonable level of traffic generating toll charges can cost-justify prematurely retiringmodem capital and introducing ADSL as there are immediate cost benefits. However an SME with little traffic and only one telephone line may still find that dial-up modems provide adequate service at a lower price.

Beyond Surface Similarities: Telecommunications Industry Structure Evolution in Finland and New Zealand

Abstract Finland and New Zealand share many geographic, demographic and economic similarities. Their telecommunications markets also demonstrate many similarities; but behind these superficial similarities lie important structural differences that influence market performance. By tracing the evolutionary path of each market from the nineteenth century, this paper identifies how ownership and control structures in the very early stages of market development have influenced the shape of each market today. The paper concludes that an appreciation of the different economic histories and cultures in each country’s telecommunications market is helpful for understanding subsequent industry responses to changes in regulatory processes and government policies.

Telecommunications Market Evolution in Finland and New Zealand: Unbundling the Differences

Finland and New Zealand are two countries with many geographic social demographic and historic similarities. Their telecommunications markets also demonstrate many superficial similarities. However beneath the superficial performance parallels lie two markets that have developed under fundamentally different cultural institutional commercial and political assumptions. By tracing the development of each market this paper explores the effect that these differences have had upon shaping the markets and explaining both the observed similarities in market performance and the differences. The comparative analysis suggests that Finlands industry characterised by decentralised and privately-owned local firms has adjusted to the more liberalised commercially-focused and competitive markets in the 21st century in a more measured and evolutionary manner than has been observed in New Zealand where centralised government ownership and control prevailed until the revolutionary joint privatisation and liberalisation occurred. The different cultures norms values and attitudes observed in the two countries have both evolved as a consequence of the different market development paths taken and in part explain many of the commercial differences. Nonetheless the most significant differences in observed market performance appear to arise from regulatory artefacts - in New Zealands case to the distorting influence of universal service and free local calling obligations and in Finlands case to the prevention of mobile handset bundling with subscriptions.

The Tyranny of Distance Prevails: HTTP protocol latency and returns to fast fibre internet access network deployment in remote economies

As public policies seek to advance deployment of enhanced broadband infrastructure as a means of acquiring economic advantage, the issue has arisen of the extent that additional economic performance accrues from increases in headline bandwidth speed in locations that are physically remote from the infrastructure hosting time-critical information services. For time-dependent applications, latency (the time delay in accessing data across a network) is correlated with the effective bandwidth (the actual speed of access), and thus impacts upon the economic performance of the application to the user. We extrapolated data for interactive web-based applications from Belshe (2010), where latency was found to substantially reduce the effective bandwidth available to the user of a typical web-based application, to estimate the effective bandwidth over a range of headline bandwidths and latencies typical of web-based transacting patterns in New Zealand. We find that the decreasing returns on effective bandwidth as headline bandwidth increases are further exacerbated by the higher levels of latency experienced as a consequence of New Zealands distance from the bulk of the global infrastructure supporting web-based applications.The benefits of enhancing headline bandwidth through new forms of faster infrastructure were substantially reduced by the impact of the latencies typically experienced by New Zealand users accessing remote web based applications, and thus the economic benefits expected from investment in infrastructure in accessing enhancing those applications most impacting economic performance is likely to have been exaggerated; providing an insight into a constraint upon cloud computing and other web-enabled information systems.

From providers to primary health organisations: An institutional analysis of nonprofit primary health care governance in New Zealand

Policy reforms to primary health care delivery in New Zealand required government-funded firms overseeing care delivery to be constituted as nonprofit entities with governance shared between consumers and producers. This paper examines the consumer and producer interests in these firmsʼ allocation of ownership and control utilising theories of competition. Consistent with pre-reform patterns of ownership and control, provider interests appear to have exerted effective control over these entitiesʼ formation and governance in all but a few cases where community (consumer) control pre-existed. Their ability to do so is implied from the absence of a defined ownership stake and the changes to incentives facing the different stakeholding groups. It appears that the pre-existing patterns will prevail and further intervention will be required if policy-makers are to achieve their underlying aims.

Regulatory Implications of Structural Separation

This submission was prepared as a response to the Ministry of Economic Developments discussion document Regulatory Implications of Structural Separation.

The End or the Means? The Pursuit of Competition in Regulated Telecommunications Markets

Economic analysis takes as its defining performance benchmark the pursuit of increases in welfare (efficiency). Competition is merely one of a variety of means of achieving the efficiency end especially in industries where the underlying economic circumstances predispose them towards greatest efficiency when competition (in the form of many market participants) is restricted. Typically regulatory intervention in these industries is justified by the imperative to increase efficiency. Competition law and industry-specific regulation provide two competing means of intervention whereby the pursuit of efficiency can be enhanced. The challenge is in determining how to allocate responsibility for governance of industry interaction between these two institutional forms. Whilst competition law can govern interaction in most industries where the underlying economic conditions are sufficiently different industry-specific regulation offers advantages. However its weakness is the risk of capture leading to the subjugation of the efficiency end to the pursuit of other objectives (e.g. competition - the means - as an end in itself). But if the regulatory institution could be bound in some way to pursue an efficiency objective could the risk of capture be averted? By exploring the attempts to prioritise the pursuit of efficiency via both competition law and industry-specific regulation in New Zealand over the past twenty years this paper concludes that such an endeavour is unlikely to be successful in the long run. As politicians ultimately control the rules by which the regulatory responsibilities are allocated and politicians are themselves pose a potential risk of capture for the industry-specific regulatory processes the inability of a government prioritising efficiency objectives to bind its successors to the same objectives means that the efficiency objective is not stable. From the New Zealand experience the outcome could be total subjugation of industry-specific regulation to direct political control and the abandonment of efficiency as a primary regulatory objective. This suggests that imperfect though it may be competition law overseen by a judiciary with greater independence of the political process offers the best chance of enshrining pursuit of efficiency into the governance of industry interaction even in industries normally the focus of industry-specific regulation.

Never a Sporting Chance: Broadband and Content Bundling in the Merger of Two Dominant Firms

Bundling of broadband access and other services prevails in telecommunications markets. In converging markets, bundling broadband with video content is feared to foreclose broadband market competition. However, the motivations for bundling are many and complex, as are the forms it can take in different demand- and supply-side circumstances and its effects on both profits and welfare. Yet discussion of bundling in telecommunications markets has focused almost exclusively on the potential for strategic foreclosure by a dominant firm. Analysing the recently-declined New Zealand merger between Sky Television and Vodafone, we find that bundling fixed broadband with fixed voice connections or with mobile services likely harms dynamic efficiency more than bundling it with one content deliverer or application. Preventing content and broadband bundling can potentially interfere with infrastructure investment and decommissioning decisions during the transition to an all-IP environment. Furthermore, deep discounting of bundles may be evidence of informed consumers acting rationally or effectively competitive firms responding to market incentives, as well as of an intention to foreclosure. We recommend that more attention be given in future analyses to demand-side factors influencing the efficiency of bundled offers, and the form of bundling employed in addition to its presence or absence.

From Competition to Regulation: New Zealand Telecommunications Sector Performance 1987-2007

Using an efficiency-based framework this paper analyses the performance of New Zealands telecommunications sector under competition law-based sector governance (the period from 1987 to 2001) and under industry-specific regulation (2001 to 2007). The framework considers the productive allocative and dynamic efficiency effects of each regime and the nature of the strategic interaction of sector participants. The analysis reveals that substantial gains in all forms of efficiency were achieved during the 1990s both compared to historic New Zealand and contemporary OECD benchmarks. Under industry-specific regulation however transfers to consumers appear to have reduced transaction costs have increased and delays are being incurred in the deployment of new applications and technologies relative to the competition law regime as participants engage in strategic gaming with politicians and the regulator and respond predictably to the range of incentives offered under the regulatory regime. The paper concludes that on balance in the New Zealand circumstances the regime based predominantly upon competition law appears to have outperformed the industry-specific regulatory regime albeit due in large part to sector participant interaction shaped by contractual obligations imposed by the government on the incumbent which have prevailed unchanged under both regimes.

Bundles of Trouble: Can Competition Law Adapt to Digital Pricing Innovation?

The burgeoning digital economy is characterized by bundled offers of goods and services, many with near-zero marginal cost, in highly concentrated markets often exhibiting competition ‘for the mark...