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An professed ground for modulating entree is to cut down beltway where it inefficiently duplicates substructure. and to advance entry in downstream markets. However. where competition is executable. as it now is in much of the telecommunications web. some duplicate beltway is efficient to set up competition between possible and existent installations that flows through to increased use and lower monetary values. This article shows that ISP concluding monetary values are lower. internet use is higher. and figure of ISPs per caput of population is lower in New Zealand relation to Australia. It goes on to reason that ISPs pose competitory menaces for telecommunications companies and that New Zealand’s unfastened competition government relation to Australia’s entree ordinance has predisposed it to more efficient installations competition. The larger figure of downstream entrants in Australia has non resulted in lower monetary values. and the figure of ISPs in New Zealand is more than plenty for vigorous competition in that market. The extent to which ordinance can double competition every bit good as cut down duplicate is a
critical issue in the optimum design of a regulative construction is an of import subject about which grounds is emerging in telecommunications.
( ISP ) markets of Australia and newBoles de Boer. Zealand David Christina Enright and Lewis Evans
David Boles de Boer is Research Principal at the New Zealand Institute for the Study of Competition and Regulation. Victoria University of Wellington. PO Box 600. Wellington. New Zealand ( Tel: +64 4 463 5560 ; facsimile: +64 4 463 5566 ; electronic mail: [ electronic mail protected ]; hypertext transfer protocol: //www. iscr. org. nz ) . Lewis Evans is Executive Director and Professor of Economics at the New Zealand Institute for the Study of Competition and Regulation. Victoria University of Wellington. PO Box 600. Wellington. New Zealand ( Tel: +64 4 463 5560 ; facsimile: +64 4 463 5566 ; electronic mail: [ electronic mail protected ]; hypertext transfer protocol: //www. iscr. org. nz ) . Christina Enright is Associate Lecturer at the Australian Defense Force Academy.
This article compares the Australian and New Zealand cyberspace markets. It draws to a great extent on Enright ( 2000 ) 1 which reports the short history of ISPs in New Zealand since the origin of the commercial cyberspace at that place in 1994. It besides provides a reappraisal of the monetary values and market portions and strategic motives for entry to this market. The cyberspace phenomenon is world-wide. Thus although the New Zealand market has experienced rapid monetary value diminutions and turning market incursion. its public presentation in presenting benefits to consumers should be judged comparative to that of ISP markets elsewhere. International comparings are fraught with troubles that make for really cautious reading of cross-country monetary value surveies. 2 Nevertheless. in this instance certain of these troubles are non major when sing the Australian and New Zealand ISP markets. The intent of this article is to construct on the grounds of Enright. 3 and topographic point it in a wider context by comparing the Australian and New Zealand ISP markets in 1999. The comparing suggests that cyberspace service proviso in New Zealand was cheaper in 1999 than in Australia and that incursion and use in New Zealand was at least that of Australia.
Because the ISP market does non necessitate big investing in assets that. one time made. are so sunk. entry costs are low. Furthermore. telecommunications substructure costs and the ability to besiege them impact the ultimate degree of ISP costs. The comparative ISP costs of the two states are in agreement with the statement that telecommunications substructure competition in Australia is weaker than in New Zealand. The weaker competition is attributed to the different regulative governments of the two states. While these governments are both widely held to be light-handed. 4 the Australian government is industry-specific and comparatively invasive compared to New Zealand. which to a big extent has relied upon competition jurisprudence entirely since 1989. 5 This article suggests that the lower ISP monetary values of New Zealand are declarative of more efficient installations com request ensuing from that country’s less invasive regulative stance.
ISP economic sciences
An ISP is defined as an entity that provides entree to the cyberspace as its primary map. Internet entree has been available to the populace since 1994 but was foremost available some 10 old ages earlier to some academic and authorities establishments. 1. Christina Enright. ‘Strategic behavior of cyberspace service suppliers in New Zealand’ . MBA Research Paper. Victoria University of Wellington. March 2000. and New Zealand Institute for the Study of Competition and Regulation. research paper ( hypertext transfer protocol: //www. iscr. org. nz ) . 2. These include conceptual ambiguity about the usage of buying power para or nominal exchanges rates to change over monetary values into a common unit of history. and the fact that where pricing governments have the signifier of bipartite duties. standard monetary value indices can be misdirecting in bespeaking how good consumers are being served. peculiarly where sums used differ widely. 3. Christina Enright. op cit. Ref 1.
Since 1996. most ISPs have begun to supply extra services as a manner of diversifying into higher value merchandises. ISPs are considered members of the telecommunications service industry since they provide entree to the cyberspace via the telecommunications substructure ( which includes telephone service. leased-line services. informations communicating and charge ) . Internet entree is one of the many services provided by telecommunications companies. Most ISPs in the industry sell internet entree and other related telecommu nications services through bandwidth leased from informations communicating webs. frequently owned by telecommunications web suppliers. They so repackage this into sums useable by persons and companies.
Internet entree through either dial-up or high velocity informations connexions is a repackaging of the leased bandwidth. and therefore the proviso of cyberspace entree has become a new market. a subfield within the telecommunications industry. The relationship between cyberspace and telecommunication services is set out in a conventional manner for 1999 in Figure 1. 6 F immunoglobulin u rhenium 1: The topographic point of cyberspace service suppliers in webs. TELCO ( Traditional telephone services ) Household and/or workplace Local exchange Toll exchange
Until 1999 an ISP by and large accepted telephone calls at the toll exchange. either through 0800 Numberss or by puting points of presence ( POPs ) at local exchanges. In 1999 the New Zealand officeholder. Telecom New Zealand Limited ( Telecom ) . provided direct entree by agencies of its 0867 figure. At the toll exchange the connexion has usually been to leased bandwidth from the switch to the ISP waiter. from at that place to an international gateway. By far the greatest usage continues to be directed towards web sites in other states. The elements of an ISP’s concern described in Figure 1 illustrate that indispensable ingredients of this concern are bandwidth and waiters. There are extra value-added services provided by ISPs ± eg 4. See Pablo T. Spiller and Carlo G. web site applications and help desk service ± but bandwidth Gardilli. ‘The frontier of and waiters are core costs of the concern. As a effect. telecommunications deregulating: little states taking the pack’ . The Journal barriers to entry are low. All that is required to get down an ISP of Economic Perspectives. Vol 11. No 4. company is an cyberspace waiter ( $ NZ 5000 to $ NZ 20 000 ) 1997. pp 127–38. and leased bandwidth.
Within New Zealand. bandwidth 5. New Zealand has had a cpi-x government. and certain other limitations. for services are leased from assorted providers that include: family entree since 1990. Telecom. Clear. Saturn. BCL and other houses with 6. Figure 1 indicates in wide footings the construction of webs. It does non purport microwave conveying equipment or even ISPs themselves to supply a elaborate. latest as they develop their ain substructure. Bandwidth services description of modern telephone or IP beyond the gateway can be leased from a competitory scope webs. 7. While the distinction between of domestic and international suppliers. 7 Since the leased bandwidth and telephony subdivisions of the service can be paid for monthly. it is easy to set costs in web is utile. it is progressively response to volume of usage. unreal as broadband is being laid straight to all clients ( eg by Saturn ) Customer shift costs are low. Changing ISPs and ways of using broadband requires the client to pay a connexion fee to the new capablenesss of Cu wire are being installed ( eg xDSL ) . ISP. obtain a new electronic mail reference and put in some new package.
The distinction of merchandises that does be is in response to the single demands of the client. The factors in finding the degree of service include monetary value. velocity of entree. consistence of entree. and assist available to the client. For illustration. an experient cyberspace client is most likely to desire a low monthly monetary value and high entree velocity. but minimum aid. The degree of service required for concern V residential clients is distinguished by consistence of entree since a concern client requires greater dependableness of entree. Switch overing costs are besides likely to be higher for some concern users due to the demand to alter the electronic mail reference. but this may be avoided by buying a sphere name. Telecommunications companies face assorted menaces from ISPs. They may lose traffic by clients exchanging to a different manner of voice exchange and may lose client relationships that would ease conveying emerging valued-added services. In add-on. ISPs pose competitory menaces for the telephone web itself.
For illustration. telephone charges that are high between the local and toll exchanges stimulate entry in this section and thereby the extension of broadband to the local exchange. This has in fact taken topographic point. In New Zealand an ISP Ihug has bypassed toll exchanges ± and. by the way. the incumbent’s international gateway and broadband beyond the gateway. The toll beltway is represented by the broadband marked ( a ) in Figure 1. In Wellington metropolis and environments. Saturn has bypassed both the toll and local exchanges with broadband to the family. By manner of drumhead. the cardinal characteristics of ISP services are: really low upfront capital cost. low client shift costs. particularly for those entities with a sphere name. W hile there is some fluctuation in service features. they are sufficiently similar to be regarded as about homogenous. There have been fluctuations over clip in the quality of services that will hold affected service features and the comparative demands for ISPs. The ( possible ) volume of the cyberspace concern has posed a challenge to the pricing of lines for traditional telephone services and stirred telecommunications companies
to acknowledge the competitory menace of the ISP’s demands for competitory bringing of broadband services to the local exchange. if non to the family. In short. ISPs are at the nucleus of web interconnectedness and attendant beltway issues and the public presentation of the ISP market is a strong index of the public presentation of the regulative government within which web communications suppliers operate.
The New Zealand consumer
Harmonizing to Enright. all New Zealand cyberspace users have benefited from a important lessening in internet entree monetary values. 8 with different types of users basking monetary value lessenings at different times. Using the monetary value agenda for each ISP ( see Enright Appendix B ) . monthly charges for three typical users were calculated from 1996–99. For this intent the users are defined as:
Each month. uses 10 hours of connexion clip and downloads 20Mb of international traffic. all at peak usage times. As of 1998/99. this characterises a low-end place user. although this would non hold been 8. Christina Enright. op cit. Ref 1. s 4. 5. so at the beginning of 1996.
Uses 20 hours per month of connexion and downloads 100Mb of international traffic. 50 % at peak use. This character izes either a heavy residential user or a little concern. with a comparative addition in the former during the survey period.
Uses 50 hours per month of connexion clip and downloads 500Mb of international traffic. 20 % at peak use. This characterizes a concern user. and the computations assume that excess electronic mail references are non every bit of import as minimising the monthly charge. Many of these users have high speed dial-up connexions or upgraded informations connexions. although this has non been assumed for monetary value computations. Figure 2 below shows mean monetary values. based on all ISPs listed by Enright for 1996 ± 99 for the three types of user. 9 F immunoglobulin u rhenium 2: Average of monthly monetary value for all users. $ 420 High-end user $ 320 Monthly alterations
The reported norms are simple norms calculated arithmetically. Because consumers substitute off from the more expensive providers. the arithmetic norm will be greater that the norm obtained by burdening by use. For all three user-types at that place has been a steady diminution in monetary value over the period. with the largest diminution for the high-end user. The spread in monetary values between different ISPs and user types has closed. although there is still considerable fluctuation between ISPs. 10 Obviously. all three types of cyberspace entree clients have benefited from the lower monetary values in the market. Users who use less than the `low-user’ above can take 9. All monetary values are before indirect revenue enhancements. advantage of the low-priced. low-service suppliers. It is besides They have non been adjusted for rising prices. Although rising prices has been low through the clear that as the pricing schemes become less differentiated. survey period. these indices will minimize ISPs will be forced to vie on other factors. such as somewhat the existent monetary value diminutions. 10. Christina Enright. op cit. Ref 1. s 4. 5. excess services or dramatic additions in transmittal velocity.
Ihug has maintained the lowest monetary value for the high-end user throughout the survey period. Enright shows that the ISP owned by Telecom New Zealand Limited. Xtra has had monetary values that were below its rivals for the low cost user but that Ihug maintained a lower monetary value for the midrange and high-end users. 11
Comparison with Australia
ISPs in each state provide basically the same services. The construction of the two markets is rather different. Australia has about 180 ISPs in comparing with New Zealand’s 11. 12 In 1999. the ISP ( Bigpond ) of the Australian officeholder telecommunications company. Telstra Corporation Limited. had a market portion of 26. 3 % whereas Xtra held 40 % of the New Zealand market. Relative monetary values are indicated in Table 1. It includes the 1999 information of the earlier Figure 2 together with the tantamount informations for Australia. The arithmetic norm reflects merely monetary values and it is sensitive to monetary values no affair the extent to which clients use each ISP. 13 The leaden norm is lower than the simple norm because it reflects the higher weights ( comparatively higher use ) attached to the cheaper ISPs.
The norms disguise considerable monetary value fluctuation within both countr Internet Explorers. reflecting somewhat different services and the different monetary value waies that houses have chosen. Without seting for the exchange rate. the domestic currency monetary values suggest that ISP services are priced likewise in New Zealand and Australia. On the footing of both norms. at nominal exchange rates and the OECD buying power para exchange rates. New Zealand monetary values are lower. 15 Ta B lupus erythematosus 1: Australia and New Zealand: monthly norm monetary values. End user Level of usage Low Mid-range High A. norm W. mean A. mean W. mean A. mean W. mean Australia AUS $ PPP $ 24 $ 22 $ 35 $ 33 $ 68 $ 58 $ 27 $ 25 $ 40 $ 37 $ 77 $ 66 NZ $ $ 29 $ 27 $ 42 $ 40 $ 82 $ 70 New Zealand NZ $ $ 24 $ 20 $ 37 $ 27 $ 65 $ 38
( A ) Arithmetical mean monetary value ( W ) Weighted mean monetary value ( weighted by market portion ) Note: these monthly monetary values are obtained from 11 ISPs that cover 70 % of the Australian market and 5 ISPs that cover 80 % of the New Zealand market. Palatopharyngoplasty: OECD 1999 Exchange rate of 1 $ NZ= 0. 83 $ Aus.
11. Christina Enright. op cit. Ref 1. s 4. 5. 12. There are many more ISPs in both states with negligible market portions. 13. These norms utilize the monetary value of ISPs that make up the market portions indicated in the tabular array. The other ISPs were each really little ( less than 2 % market portion in Australia ) .
Internet entree and use varies quickly over clip. and its measuring is affected by the manner it is utilised. 16 The incursion rate measured as the figure of ISP histories per caput of population is 13 % for New Zealand and 10 % for Australia. For families. the USA. Australia and New Zealand stand out by a important border as leaders internationally ( see Nielsen/NetRatings. 20 March 2000
of internet service supplier ( ISP ) markets of Australias and new Zealand
the public presentation 493
( hypertext transfer protocol: //eratings. com/news/20000504. htm ) ) in cyberspace use. Australia and New Zealand’s ranking is attributed to their comparatively de-regulated position and free per-minute naming for families. The ACNeilson informations suggest that on a population footing New Zealand and Australian families utilize the cyberspace to a really similar extent. We conclude that the incursion and use of ISP services is at least that of Australia. The comparative incursion rate and use of cyberspace services in the two states is in agreement with the monetary value derived function between them.
Telecommunications has long been considered a non-tradable good in that domestic services are non contestable by services supplied by beginnings 14. To take history of possible different external to New Zealand. In fact. broadband services are to forms of ingestion. the comparing should be made on the footing of consumer some grade contestable: they can be and are routed usage in each state. Our informations do non through Australia between two points in New Zealand. and license this and so a common package has been used. Using this package will non give to other states from New Zealand misleading consequences if the ingestion packages of little. medium and big consumers are really similar in the two states. Unlike telephone. the duty constructions are similar for ISPs. proposing that the ingestion packages will be similar. In each state they are dominated by ‘take-or-pay’ blocks of use and these are offered to consumers in similar. though non indistinguishable. sizes.
Therefore the interruptions or cricks in the duty constructions are similar and it is likely that use will be similar. Similarity in ingestion packages. at least for families. is confirmed by the Nielsen//NetRatings of March 2000 ( hypertext transfer protocol: //eratings. com/news/20000504. htm ) which estimates of clip spent surfing on the Internet per month and per session are about indistinguishable in Australia and New Zealand. 15. To analyze farther indexs of monetary value derived functions we look at the charges ( monetary values ) for variable usage. In this context. we note that use in surplus of the Bigpond ( Xtra ) take-or-pay block of 10 hours per month costs $ AUS3. 60/hour ( $ NZ1. 25/hour ) and transcending the 80 hours per month ( 100 hours per month ) block of Bigpond ( Xtra ) charges are $ AUS1. 60/hour ( $ NZ0. 65/hour ) in 1999.
Both ISPs had important market portion – Bigpond 26. 3 % and Xtra 40 % – of their several markets. These monetary value derived functions confirm the comparative monetary values indicated by the norms. 16. For illustration. there may or may non be multiple users of the same entree point. 17. Note that. at least on the footing of population denseness. web costs are likely to be of the order of 5 % lower in Australia ( see Dan Alger and Joanne Leung. Relative Telephone Costss Across Five Countries. New Zealand Institute for the Study of Competition and Regulation. February 1999 ( hypertext transfer protocol: //www. iscr. org. nz ) . There will be much within-country fluctuation in costs due to density fluctuation across locations.
Contestability in broadband services when combined with the fact that there is an international market for waiters and labour suggests that ISP services are to a certain extent internationally contestable and that Australian and New Zealand ISP monetary values may meet to shut propinquity over clip. 17 However. at this phase of market developmen t New Zealand’s monetary values for ISP services would look to be lower and the size of the market relation to the population at least every bit high as for Australia. The beginning of the Pr ice derived function may convey inform ation about the comparative perform ance of the Australian and New Zealand regulative systems.
The reported monetary values are ISP charges. If. as seems likely. waiters and labour cost about the same in the two states in exchange-rate or PPP adjusted currency. so the difference would look to lie either in broadband costs or less ( possible ) beltway of the telephony service of the toll exchange: these two possibilities will about surely be a contemplation of the same factors. 18 The Australian regulative government is really complex in comparing to that of New Zealand. It has three separate organic structures that have duties for different facets of telecommunications. Rather than try a comprehensive coverage of it. we confine our attending to certain of the facets that are relevant to the ISP market. 19 New Zealand has no web entree ordinance: the officeholder is constrained by the menace of beltway. Since the death in 1997 of the duopoly-telecom munications policy. the Australian Competition and Consumer Commission ( ACCC ) has had a cardinal and rather widely discretionary function in telecommunications ordinance.
Among other maps. it administers the telecommunications elements under Part XIB of the Trade Practices Act with the intent of easing entree to webs of bearers: this includes stipulating services that will be provided under regulated entree. and O.K.ing entree codifications. and undertakings about entree footings and conditions. It besides arbitrates differences between entree suppliers and demanders. A cardinal map of the ACCC has been to `declare’ peculiar functional services. A declared bearer service is a service for which any entrant has the right of entree and for which a difference over the footings and conditions of entree will be resolved by the ACCC at the petition of either party. 20 The ACCC has declared a broad scope of services. including cardinal services for ISPs: those of domestic transmittal and local service. While the intent of the `declared service’ regulative tool is to ease competition. it may hold the contrary consequence in certain cardinal facets of service proviso.
The broad usage of declarations ± for illustration. in state of affairss where competition is eminently executable ± may well suppress competition. Inter-city broadband transmittal was declared despite the being of rivals and possible entrants. 21 In such a circumstance declaring the service reduces the inducement for entry because it make the usage of others’ webs available to any possible entrant and raises the apparition of the service being declared on new investing. For the same grounds. declarations applied to services capable to altering engineering will about surely delay the timing of the debut of new engineering. In short. declarations on domestic transmittal and local service are likely to hold limited existent and possible competition in the proviso of the substructure that ISPs usage. The ACCC is the supreme authority of footings and conditions for declared services. If competition is inhibited by declaration. so monetary values have to be set on an administered footing: the ACCC has used a assortment of attacks including cost theoretical accounts.
Whatever the attacks are. pricing will non be determined by vigorous offerings of ( possible ) alternate substructure. To the extent that entry is inhibited and the market for the declared service has merely one or two participants. monetary value finding will confront all the issues of administered monetary value scene that is intrinsic to monetary value ordinance whatever its signifier. 22 The market power conferred on the officeholders by declaration ± and consequent reduced possible entry ± together with a scope of information and conceptual jobs of an administered monetary value renders it extremely hard for the 18. This treatment assumes that there are ACCC to put monetary values that would mime any executable no differences in web installing demands between the two states. competition. 23 These administered monetary values may be higher 19. Anne Daly and Natalie Stoeckl. than without declaration. even if they squeeze officeholders. 24 Agenda. Vol 7. No 2. 2000. pp 113–24. depict the declaration process.
For a Thus a likely account of different ISP monetary values in the two recent elaborate reappraisal of the ordinance of states is comparatively higher broadband costs implied by less telecommunications in Australia. see the ( possible ) beltway of telephone and broadband services. describe Assessment of the Telecommunications Regulatory Regime In Australia the regulative government promotes entree to in Australia. Networks Economics substructure at the disbursal of competition to provide Consulting Group. March 2000 ( see substructure. It has been successful in this regard: there are. hypertext transfer protocol: /www. telecom. co. nz ) afterlife termed ATRRA. on a population footing. more than three times as many ISPs 20. Daly and Stoeckl. op cit. Ref 19. argue in Australia as New Zealand. and the chief incumbent’s ISP. that the declaration procedure should be subjected to a cost–benefit trial. and that Bigpond. has a much lower market portion than does the New the threshold for declaration is lower for Zealand incumbent’s Xtra.
However. ISP services are telecommunications than for other comparatively homogenous and in such fortunes really few industries. 21. See ATRRA. P 25. ISPs ± even fewer than New Zealand enjoys ± can be 22. The chance of monetary value ordinance under expected to bring forth competitory results that maximize declared services may of itself inhibit societal public assistance. Surely. it appears from the grounds that entry to these services. 23. This point is made by Daly and Stoeckl. the immensely higher Numberss of ISPs in Australia has non op cit. Ref 19. pp 116–17. resulted in improved results for clients over that of 24. For illustration. if lower-cost manufacturers do non come in. New Zealand. The lower market portion of Bigpond is non at all declarative that its proprietor. Telstra. is enduring financially under the regulative government. at least in the short tally. Telstra is one of few providers of an upstream substructure service for which entry is inhibited. and in such fortunes perpendicular integrating is unessential to profitableness.
It appears that Australia has reduced infrastructural beltway under the regulative government and weakened ( possible ) installations competition. 26 The New Zealand instance survey of Enright suggests that the thrust to short-circuit bing substructure has been cardinal to the success of certain service suppliers – peculiarly. Ihug – and to monetary value competition. Indications are that it will besides be critical to the competitory menaces to telephony in general. Restricting competition in upstream substructure to advance much entry in the downstream market does non look to hold benefited Australian consumers of ISP services over their New Zealand opposite numbers. An professed ground for modulating entree is to cut down beltway where it inefficiently duplicates substructure.
However. where competition is executable. as it is in much of telecommunications webs. some duplicate beltway is efficient to set up possible and existent installations competition that flows through to increased use and lower monetary values. 28 The extent to which ordinance can double competition every bit good as cut down duplicate is one of a figure of critical issues in the optimum design of a regulative construction. Where concluding monetary values are lower. use is higher and supplying houses are financially successful under unfastened competition as opposed to entree ordinance. as appears to be the instance in the Australian and New Zealand ISP markets. inefficiencies of any duplicate are outweighed by the public presentation of competition. It is an of import subject that deserves go oning research.
25. ATRRA argue that Telstra is adversely affected in certain services. For a treatment of the perpendicular integrating issue see pp 575–77 and the mentions cited in this. of Kai-Uwe Kuhn and Xavier Vives. ‘Excess entry. perpendicular integrating. and welfare’ . RAND Journal of Economics. Vol 30. No 4. 1999. pp 575–603. and for telecommunications. Daniel F. Spulber. Yale Journal of Regulation. Vol 12. 1995. pp 25–67. 26. See ATRRA. P 45 and p 53. 27. The Australian system has regulative costs that the New Zealand system does non possess. and these would hold to be included in any full cost–benefit comparing. 28. Besides. in telecommunications the technological alteration in webs and immense volume growing has been such as to necessitate add-ons to web capacities and there is no ground why such add-ons should be restricted to the officeholder or should non be installed on a competitory footing.