Crossing the Wires: The Interface between Law and Accounting and the Discourse Theory Potential of Telecommunications Regulation By David Bernard Carter A thesis Submitted to the Victoria University of Wellington in fulfilment of the requirements for the degree of Doctor of Philosophy in Accounting Victoria University of Wellington 2008 - Abstract - Regulating telecommunications is complex: international experience indicates that there is no ‘successful’ regulatory framework due to the balancing of industry and regulatory interests (Laffont & Tirole, 2000, p. 13). The New Zealand ‘light-handed’ regulatory experiment failed and the 1999 General Election presented an opportunity for change in telecommunications. The Labour-led Government in implementing a policy of ‘responsible re-regulation’ enacted the Telecommunications Act 2001, signalling the passage of “landmark telecommunications legislation …” (Swain, 2001d). Within the Telecommunications Act 2001, ‘cost’ assumed a central regulatory role. It is this move to cost that this thesis considers in identifying, developing, and critiquing the interface of law and accounting. The thesis examines the increasing call for accounting information in law and regulation by interrogating the use, presentation, and reception of accounting to examine the interface between law and cost in the regulation of telecommunications. The Telecommunications Act 2001 incorporates total service long run incremental costing as the ‘costing technique’ for interconnection access and annual net costing for the Telecommunications Service Obligation. Through interrogating ‘cost’ as an accounting technology, in contrast to the economic and legal conception of cost as a simple, objective concept, the thesis illustrates the role of cost at methodological, technical, and political levels, and the challenges that this poses for telecommunications regulation. The thesis articulates the relevance of discourse theory to the interface of law and accounting. Consequently, the thesis investigates the formation and discursive enunciation of standpoints of political identities characterised by antagonism and uncertainty. This includes identifying attempts by interested parties, including industry actors, stakeholders, and the Government and its agents, to articulate ‘new’ discourses centred on nodal points around ‘cost’. The rhetorical analysis examines how actors articulate the metaphorical element of ‘cost’ in agitating for particular costing methods to be included in the legislation. The empirical analysis examines the process of rhetorical condensation as arguments for and against the incorporation of total service long run incremental costing and net costing came to signify the complete failure of the light-handed regulation. Then, by examining the politics following the enactment of legislation, this condensation is unpacked. The analysis of the contestation over interpreting and implementing the regulation illustrates displacement of the ‘common’ signifier resulting in confusion and disappointment in relation to the aims of the new regulatory regime. - 2 - - Acknowledgements - “Dear David, Hope you finish your PhD – whatever it is” Invariably, this paragraph will not express my sincere gratitude to every person who has helped me. Thank you to the School of Accounting and Commercial Law at Victoria University of Wellington and the Department of Government at the University of Essex for the opportunity. Thanks to the New Zealand Institute of Chartered Accountants and the Competition Law and Policy Institute of New Zealand for scholarship support. In particular, to my “academic idols”, Professor Judy Brown and Associate Professor Geoff McLay: both encouraged me to ask questions, to always ask ‘why’, and it is in this spirit that I conducted this work. Thank you deeply, your advice, support, and encouragement has been invaluable. To my supervisors, Professor Trevor Hopper (Rhinos) and Dr Robert Deuchars (Celtic), thank you so much for your encouragement in this challenge: thank you for seeing it in me. Thank you for the friendship that we have developed over the years, and for guiding me and providing me with the space to explore. Equally, for opening their home to me, genuine thanks go to Trevor and Denise. Personally, to friends and family, I thank and love you for your support. To my father, thank you for pushing the horizons to allow me to aim high. To my mother, thank you for unwavering support. To my parents-in-law, thank you for your understanding, support and encouragement. To my sister, brother-in-law, and to my nieces (who are responsible for the above quote: I’ll explain what it is all about later, but not for quite a while), your support has been appreciated. Finally, to my dear wife, Erene, all my love and thanks go to you. Without your understanding, support, and space, this thesis would not be completed. You are part of each chapter, page, sentence, and word. Cheers, David Carter - 3 - - Table of Contents - Crossing the Wires: The Interface between Law and Accounting and the Discourse Theory Potential of Telecommunications Regulation Abstract 2 Acknowledgements 3 List of Illustrations 10 Chapter One: Introduction I Introduction 12 Chapter Two: Utility Regulation in New Zealand: The Great Competition Law Experiment I Chapter Two Overview...........................................................................................18 II Economic Regulatory Theory.................................................................................19 III Economic Schools of Thought: Chicago and Harvard ...........................................20 A Chicago: Efficiency 21 B Harvard: Consumer Welfare 22 C Genealogy of Economics in Competition Law 23 1 1975 – 1986: Consumer Welfare .....................................................................24 2 1986-2001: Chicago Efficiency .......................................................................24 3 2001 to Current: Consumer Welfare and Efficiency? .....................................26 IV The Great Competition Law Experiment: Light-Handed Regulation and Telecommunications...............................................................................................27 A The Light-Handed Experiment 29 1 Information Disclosure and Business Separation ............................................29 2 The Commerce Act 1986 ..................................................................................29 3 Private Attorney-Generals: Telecom’s Competitors .......................................30 4 Threat of Government Intervention .................................................................30 B Light-handed Regulation – Telecom v Clear 31 1 The Dispute ...................................................................................................... 31 2 Privy Council Appeal .......................................................................................33 3 Effect of the Decision .......................................................................................33 V The Failure of Light-Handed Regulation................................................................ 34 A What is it About Telecommunications? 34 1 Telecommunications: Networked Natural Monopolies ...................................35 2 Problems with Light-handed Regulation ......................................................... 39 (a) Limited Commerce Commission Resources 39 (b) The Lack of a Credible Threat of Government Intervention 40 (c) Failure to Regulate for Anti-developmental Behaviour 41 VI Politicising Telecommunications............................................................................42 A The Labour-Alliance Coalition Government - 1999 44 1 The Fletcher Report – the Ministerial Inquiry .................................................44 - 4 - 2 The Government’s Response ............................................................................44 VII Correcting Experiments: Telecommunications Act 2001.......................................45 A ‘Re-regulating’ Telecommunications 45 1 The Move to Sector-Specific Regulation ..........................................................46 2 Overview of the Telecommunications Act 2001 ...............................................46 (a) Telecommunications Commissioner 46 (b) The Access System 47 (c) The Telecommunications Service Obligation 49 (d) General Network Regulation 50 (e) Self-regulation 50 B Conclusion: The Context of Re-Regulation 51 C Chicago and Harvard Economics within the Telecommunications Act 2001 52 D Public Interest and Regulatory Capture: Telecommunications Act 2001 53 1 Public Interest Regulation ...............................................................................54 (a) Public Interest Regulation and Infrastructure Industries 55 (b) Criticisms of Public Interest Regulation 58 2 Regulatory Capture ..........................................................................................59 (a) Demand-Side Regulatory Capture 60 (b) Supply-Side Model of Regulatory Capture 60 3 The Insights of Public Interest Regulation and Regulatory Capture ...............61 VIII The Limits of Existing Regulatory Theory............................................................61 IX Conclusion .............................................................................................................62 Chapter Three: The Interface between Law and Accounting: Cost Theory I Chapter Three Overview.........................................................................................64