In 1986, the Fourth Labour Government, as part of a programme to free the New Zealand economy from rising public debt and to make State Service delivery organisations more efficient and accountable, passed the State Owned Enterprise Act. New corporate state trading companies were formed to operate as commercially accountable enterprises. Telecom Corporation of New Zealand Limited, one of those companies, began operating on 1 April 1987 (Wagner, 1994). When Telecom was corporatised, its first priority was to restructure the company in preparation for deregulation and eventual competition. The old centralised bureaucracy was dismantled and a new decentralised organisation structure was put in place. In addition,
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21Telecom embarked upon a number of programmes to increase service quality, network reliability, personnel productivity, and profitability. Vigorous cost-cutting programmes were put into place, a substantial number of jobs were made redundant, and outdated systems were replaced with computerised alternatives. The whole telecommunication network was substantially upgraded, and a progressive programme to remove cross-subsidies through tariff re-balancing was begun. (Telecom Corporation of New Zealand, 1993). In 1990 Telecom Corporation was privatised through sale to a consortium headed by two American telecommunications companies, Ameritech and Bell Atlantic for $NZ 4.35 billion. This was the sixth biggest deal in the world in 1990 and, until recently, the biggest deal in New Zealand history (Hyde, 1991). As part of the deregulation process, new competitors entered the market. Clear Communications introduced competition in the tolls and local call market, and is now competing as an internet service provider. BellSouth (now owned by Vodafone) is catching Telecom in the mobile phone market, and Australian firm Telstra is targeting the international toll call business of commercial organisations. International companies (including Motorola, Nokia and Ericsson) are selling telecommunications equipment, and New Zealand companies (such as Ben Rumble) have entered the retail equipment sales and servicing sector. Despite the huge increase in competition over the past fifteen years, Telecom still has a natural monopoly in regard to the ‘local loop’, the wires connecting individual households to the exchange. Several competitors have taken Telecom to court claiming anticompetitive practices, and the present government has promised an enquiry to review the current ‘light handed’ regulatory regime. The Telecommunications Users Association of New Zealand believes there is insufficient competition in some value-added services (eg ISDN lines), and the Ministry of Commerce has estimated “deadweight losses arising from monopoly rents in telecommunications” to be between $50 million and $250 million each year (Gordon, 1997).
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