Strategic Interaction under Asymmetric Regulation - Adoption, Usage, and Global Impact of Broadband Technologies - page 41

'Kiwi Share' provisions have been the underly-
ing causes of strategic tensions, the outcomes of
which have determined both the nature of com-
petitive interaction undertaken and the extent of
political intervention observed. The asymmetric
nature of the obligations has undoubtedly created
many more potential opportunities for strategic
interaction, arbitrage and conflict than if they did
not exist. The consequence of their presence has
been a very different pattern of strategic interac-
tion in New Zealand than has been observed in
other countries where more conventional industry-
specific regulation, arbitrated by a regulator, has
prevailed.
The 'Kiwi Share' obligations have been unique
to the New Zealand market, and the conflicts that
have emerged have also been unique to the cir-
cumstances in which they emerged. Nonetheless,
when conflicts or enigmas in sector performance
have emerged, the response of both the industry
participants and policy-makers has been to look
'downward' in the institutional hierarchy to find
'causes' and hence 'solutions' for the enigmas in
the firms, markets and access regulations, rather
than 'upwards' to institutions embodied in the
'Kiwi Share'. Whilst there has been a complete
reversal in New Zealand's industry regulations,
from the OECD's most liberal competition law-
predominant governance in the 1990s, to one
of the most radical industry-specific regulatory
regimes with mandatory functional separation in
the late 2000s, the 'Kiwi Share' provisions have
remained essentially unchanged.
Despite theoretical and empirical economic
evidence of the incompatibility of universal ser-
vice with competitive outcomes, and a body of
literature detailing the effects of tariff structure
on technology diffusion, the embeddedness of
the 'Kiwi Share' provisions in the New Zealand
institutional framework appears to have rendered
them beyond the scope of consideration as possible
explanators of observed strategic interactions and
outcome. Yet as this paper shows, they have been
pivotal. Although Williamson (2000) observes

that such embedded institutions themselves may
be long-lived, the asymmetric contracts that em-
body them as obligations on Telecom alone need
not be immutable. Indeed, the extent to which
the 'universal service' obligation has been made
a charge on the industry as a whole via the TSO
reflects the ability to bring about changes.
A question remains, however, about the sanctity
of the 'free local calling' obligation. Its economic
implications for the sector have arguably been
greater than those of 'universal service', yet it has
been specifically excluded from consideration in
the latest review of services. Its sanctity has likely
contributed to the proclivity to seek institutional
solutions to the problems it has engendered, rather
than addressing its features as a potential cause
of the problems evidenced. That the institutional
solutions adopted so far have failed to adequately
address the 'problems', and have led to the emer-
gence of even more complex problems that are
even less likely to be addressed by the solutions
adopted, is unsurprising.
Whilst it might be hoped that the 'free local
calling' obligation will be eventually resolved
by the replacement of traditional PSTN services
with internet-based voice telephony services, its
spectre remains in the form of mandatory 'flat
rate' broadband tariffs. Aside from the difficulties
of mandating flat-rate tariffs for one application
on a multi-application platform, the New Zealand
experience suggests that extensive mandatory and
voluntary adoption of flat-rate tariffs poses chal-
lenges for the strategies of both firms and regula-
tors as traffic volumes become more asymmetric
between networks (e.g. with extensive use of video
streaming as a substitute for broadcast television).
The New Zealand lesson for the rest of the world
is that embedding 'flat rate' broadband tariffs into
broadband market cultures may be both distorting
and costly, and potentially even more dangerously,
overlooked as an underlying cause of 'problems'
that emerge, simply because of common accep-
tance of their sanctity. In the New Zealand case,
the extent of the distortions was exacerbated by