Strategic Interaction under Asymmetric Regulation - Adoption, Usage, and Global Impact of Broadband Technologies - page 37

were low, availability widespread, entry had oc-
curred using alternative technologies). Further-
more, the 'Kiwi Share' obligations - principally
'free local calling' - could satisfactorily explain
observed uptake variations, and that even if there
was a broadband uptake 'problem', there was no
substantive evidence that LLU would have any
material effect in addressing it 20 . Moreover, LLU
would impede Telecom's plans to invest in a Next
Generation IP-based network (the NGN).

light handed regulation that stifled competition,
growth and consumer choice in ICT markets”
and promised to “closely monitor and enforce
commitments made by Telecom New Zealand
under the local loop unbundling decisions and
ensure targets for broadband uptake for the next
three years as outlined in the Digital Strategy are
met”. 23 Upon re-election, the threat of political
action if predetermined levels of competition and
broadband uptake did not emerge was reiterated in
the Governor General's November 9 speech from
the throne outlining the government's legislative
programme: “with respect to ICT, my government
will be advancing policies to ensure that the tele-
communications sector becomes more competitive
and that we achieve faster broadband uptake in
line with our competitors”. 24
Whilst the government's acceptance of the
cause of low broadband uptake being a conse-
quence of the competitive environment is question-
able, and is addressed in other papers (see Howell,
2008; Howell, 2007), the implications for Telecom
and its rivals were clear. Telecom was on notice
that legislative action would ensue if the targets
set by the Commissioner were not met.

Conditional Agreements and Political
Threats of Legislative Action

After considering all the submissions, and
conducting its own investigations (including a
cost-benefit analysis), the Commissioner recom-
mended against full LLU: “the overall benefits
from unbundling are not sufficiently persuasive to
satisfy the Commission that a regulated solution
is warranted” 21 . Rather, the Commissioner instead
accepted Telecom's offer to make available a
regulated ADSL bitstream product. This product
would enable competitors to provide a wider range
of services, but would avoid the risk of competi-
tors sinking investment into exchange equipment
that would become stranded when exchanges
were closed as the NGN became operational.
Furthermore, Telecom's incentives to persevere
with its investment in the NGN would be greater
under bitstream unbundling than under full LLU.
A condition of the Commissioner's acceptance of
the offer was that Telecom should be obligated to
meet targets of 250,000 broadband connections
sold by the end of 2005, of which 33.3% would
be sold by Telecom's competitors.
To the considerable dismay of Telecom's
competitors 22 , the Minister accepted the Com-
missioner's recommendations. Nonetheless,
political lobbying continued, with notable effect
as Telecom's market dominance became a key
issue in the 2005 election campaign. The Labour
Party manifesto stated “this Labour-led govern-
ment has ended the destructive period of ultra-

Competitors' Strategic Responses

Whilst Telecom had every incentive to meet the
targets, the ex ante signalling to competitors of
both the nature of Telecom's obligations and the
'notice' that if they were not met legislative action
would follow, opened up new strategic opportu-
nities for Telecom's competitors. Competitors
faced few incentives to work with Telecom to sell
bitstream broadband accounts, as doing so would
facilitate Telecom in meeting its obligations to the
Commissioner, thereby making further political
intervention less likely to occur. Rather, in a two-
stage game incorporating likely future legislative
actions, it was in the competitors' interests in the
short term to thwart Telecom's ability to meet the
targets (regardless of the consequences for con-
sumers). If the government's threat was credible,