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Axe the Copper Tax

Written By: - Date published: 12:38 pm, September 12th, 2013 - 36 comments
Categories: same old national, telecommunications - Tags: ,

corporate-welfare

Amy Adams is having a bad week.

Today the Axe the Copper Tax campaign is being announced.  The Government is proposing to prevent the cost of copper broadband connections to retail users being reduced to the fair price determined by the Commerce Commission.  It is estimated that around $600 million will be transferred over the next six years to the shareholders of Chorus from the users of copper broadband through this change.  Chorus, which has the contract to build 70% of the new fibre network, paid $95 million to shareholders in the last financial year by way of dividends so this subsidy is significant.

And the reason for this particular episode of corporate welfarism?

Chris Barton in the Herald recently said this:

Deutsche Bank predicted a share price over the next year of $2.29 (significantly lower than Chorus’s listing price of $2.94) and cut its dividend forecasts for Chorus for 2015 to 18 cents per share, down from 25.5 cents previously. Deutsche also noted Chorus was facing some “$500 million of estimated unbudgeted costs associated with the greater than forecast cost of supplying UFB connections between the network and consumers’ premises.

Get that?  In a competitive tender Chorus mucked up the figures and bid too low and the Government is willing to overcharge us so that Chorus’s shareholders do not miss out.  Why don’t the Government get staunch on the issue and tell Chorus it signed a contract, rather than allow us to be overcharged so that Chorus’s shareholders do not miss out.

The coalition behind the campaign is an interesting amalgamation of user groups and commercial entities including InternetNZ, TUANZ, Covec, CallPlus, Slingshot, Orcon, Greypower, NZUSA, Rural Women, the Unite Union, National Urban Maori Authorities, Te Huarahi Tika Trust, and even Kiwiblog. This is probably the first campaign that the Unite Union and Kiwiblog have ever been jointly involved in!

This announcement is on top of earlier bad news about the Government’s proposed RMA changes.

As reported by Eddie these are under threat.  I blogged about these earlier and noted the proposed changes to sections 6 and 7 of the RMA would seriously weaken the protective principles of the Act.  The ethic of stewardship for the environment would be removed, the maintenance and enhancement of amenity values would no longer be a consideration and the maintenance and enhancement of the quality of the environment disappears as a principle.  A new principle is proposed to be added.  If passed the effective functioning of the built environment, including the availability of land to support changes in population and urban development demand, will be a major consideration when making decisions under the RMA.

Amy Adams seems to think that the changes will not harm the environment.  But when legal heavyweights such as Geoffrey Palmer and law firm  DLA Phillips Fox dispute this I know whose opinion I would trust.

Hats off to the Maori Party and to Peter Dunne (did I just say this?) for signaling that they will oppose these changes.

All in all this is a bad week for Amy Adams.  May she have many more like it.

36 comments on “Axe the Copper Tax”

  1. Bunji 1

    There’s a good blog on Public Address from Paul Brislen of Tuanz on the copper tax just gone up too.

  2. Jimbo 2

    Unite often teams up with business on campaigns – particularly ones Matthew Hooton is involved in as McCarten knows him. Drop the Rate Mate, the Carpark tax, now this. It’s nothing new.

  3. Bob 3

    Interesting, InternetNZ and TUANZ for years have complained that NZ’s internet infrastructure is falling behind the rest of the world, then as soon as they hear copper prices have to be held at similar levels (they are still dropping, just not as much as the ComCom asked for) so Chorus can help pay for the fibre roll-out Nationwide, giving us the world class internet infrastructure they asked for, they complain again!!!

    • mickysavage 3.1

      But Bob if this change is not instituted then Chorus will still have to do the roll out. It did enter into a tender where it contracted to do this. The problems with the cost overruns are its problems, not ours.

      The only change that will occur if the Government has its way is that Chorus shareholders will be richer and the rest of us will be poorer.

      Do you think this is fair?

      • Bob 3.1.1

        mickysavage – You have to remember that the Government does not own Chorus, this is just the ComCom saying that they think the copper price is too high based on other market prices worldwide. When Chorus entered into the contract for the UFB roll-out they would have factored in revenue from other areas of the business in the event of budget over-runs, now they are being told by the Government, no you can’t have money from us to cover your over-runs, and we are also going to reduce your Copper revenue, but you still have to hold up your end of the contract.

        Do you think THIS is fair?

        • jps 3.1.1.1

          well I certainly think its fair. Everyone (even Chorus) knew that the 2011 amendments required that the copper prices would be set on cost-based terms from 2014.

          • Barry 3.1.1.1.1

            The reason given for keeping the copper price high is that if it is too low then nobody will go for fibre and the UFB will look like a white elephant.

            OTOH perhaps this means that the UFB prices are too high too. Perhaps we are paying too much for internet in NZ?

        • mickysavage 3.1.1.2

          Bob

          The Deutsche bank report suggests that the problem is not with the Com Com decision but with the installation costs being higher than they thought they would be. Is this a reason for Comcom to be told to back away from the costing model which is cost plus?

          I don’t have any sympathy for Chorus and its plight. And besides the extra expenses will only reduce the dividend income paid out.

          Basically the rest of us pay more so the Chorus shareholders lose less.

          • Bob 3.1.1.2.1

            mickysavage – According to this article “It is estimated that around $600 million will be transferred over the next six years to the shareholders of Chorus from the users of copper broadband through this change”, Chorus’ profit in the last year was $171M with a dividend of 15.5c (representing about a 6% return on investment), so you are saying it is fine to rip 60% of this profit out per year? I understand that companies shouldn’t be making excessive profits on the backs of the general public, especially in a monopoly position like Chorus holds, but 6% is hardly excessive!
            If you don’t have sympathy for Chorus wanting to hold their return to investor over 2.5% then please let me know if you are a board member of any companies because I want to stay well clear of them!

            • Pascal's bookie 3.1.1.2.1.1

              Chorus will want to return as much as they can to their investors, obviously. But that’s not an entitlement. Why should it be 6%, given the contract they signed?

              The most they should be handed is what investors would have recieved on bank deposit.

            • mickysavage 3.1.1.2.1.2

              you are saying it is fine to rip 60% of this profit out per year?

              No I am not. I am saying that it appears because of the tender that Chorus lodged its profitability may not be as high as it hoped. Please explain why the general public and not the shareholders should bear the cost of this.

              • Bob

                Chorus isn’t currently making any profit out of UFB, it is entirely out of the copper network so in effect you ARE saying it is fine to rip 60% profit out per year.
                Let’s not forget, the proposal is to cut up to $7.50 off the cost off copper connections, so either way Chorus is going to have it’s profits cut (from the rediculous 6% they currently make, oh the horror), it is just not being cut up to the $12 that the ComCom originally proposed in their DRAFT report and are currently reviewing.

                • mickysavage

                  But Bob this is the consequence of the Government’s reforms. The charging of the copper network was meant to go to a “cost plus” basis and Chorus knew this.

                  It was then given an interest free loan of a billion dollars to do the work and it tendered in a competitive tender which it won at an agreed price.

                  It is losing money because it appears to have not appreciated the cost of installation of UFB. Read the Deutsche Bank report and then tell me why it is not correct.

                  You have not addressed this point despite being given the opportunity to do so on a few occasions.

    • stever 3.2

      “so Chorus can help pay for the fibre roll-out ”

      What? Chorus bid for and won a contract to do this. They clearly bid low in order to get the contract. The projections are that this will lower their share price and dividends. So, they have to answer to their shareholders, which should mean, in a fair world and a world where things work according to the “rules” that we are often told have to prevail, that whoever put the bid together has to stand up and take the flak.

      However, since they are clearly corporate scroungers, not mere members of the public, now they are being offered something to keep their share price up by the Govt, paid for by members of the public!

      Another win for the high-calibre business people in NZ…working in about the easiest place to do business in the world, and they still fail. And still they “benchmark” their salaries against people in the rest of the world who have a far harder job to do.

      Whatever happened to “survival of the fittest”????

      • framu 3.2.1

        +100

        bob, this is not to pay for the fibre rollout. It is because they are worried that with copper charges dropping that people wont move over to fibre

        they are trying to use an artificial price to influence the market – i thought that was considered bad

      • Bob 3.2.2

        See my reply to mickeysavage above, you can’t have survival of the fittest when one company is having a leg cut off by the government!

        • framu 3.2.2.1

          your completely ignoring known realities of the NZ telco market

          shit bob – its not like the idea that copper prices are too high, should be lower and if they dont go down the govt will force it down, is any big surprise to the telco industry. Its been on the cards for years

          Your trying to say that despite knowing that copper prices were too high, chorus still under quoted and we should pay for their mistakes.

          The real issue is that people arent taking up fibre even though its in the street outside. Why? because its expensive. The copper pricing issue is totally to do with this. They want to keep the price artificially high (when its already too high and should be dropping) to drive people to the fibre network. Chorus and the govt have pretty much stated that this is the issue

          I still fail to see why your sticking up for over charging customers on one network to pay for something they arent using

          • One Anonymous Knucklehead 3.2.2.1.1

            It’s because he lives his life on his knees.

            Get off your knees, Bob.

          • Bob 3.2.2.1.2

            framu – according to mickeysavages own numbers above, Chorus paid “$95 million to shareholders in the last financial year by way of dividends” and yet “$600 million will be transferred over the next six years to the shareholders of Chorus from the users of copper broadband through this change”………THIS CHANGE IS A REDUCTION IN CURRENT RATES! So the whole fuss is these people want Chorus to take all the risk, do all the work, and make $0 profit! This is rediculous even by left wing standards!
            It doesn’t take much nous to realise, if you remove $100M a year from a company paying $100M per year in dividends, that company isn’t going to last very long, what happens then? The Government steps in and has to bail them out?

            • Crunchtime 3.2.2.1.2.1

              You make no sense. They made $171 million last year in profit. Due to their own decision they will be making $100m less per year for the next 6 years. The government, by holding Chorus to this contract, is not “taking” Chorus’ profit.

            • framu 3.2.2.1.2.2

              answer one very simple question – when chorus put in their bid were they unaware of what was going to happen to copper charges?

              your sticking up for a large, essentially monopoly corporate deliberately manipulating prices in order to maintain dividends and cover their own shortfall on an unrelated project when they were aware of the signaled changes from day 1

              they knew what was happening to copper prices and they new what that would mean to their profit etc before they made the bid – please explain how any of that is anyone fault but the board of chorus?

              the decisions the board made around dividends were their decisions, not the consumers or the com com’s

              perhaps step back from the profit/dividend issue and address known running costs first – after all those do come out before you can put a figure on the profit

        • jps 3.2.2.2

          see my reply to you above: Chorus knew, at the time they were bidding for UFB, that the UBA price would go to a cost-basis.

        • tc 3.2.2.3

          sounds like chorus PR spin to me, innovate with wickedly fast fibre services that copper can never replicate, lay them faster in areas outside the bluechip suburbs and all should be fine.

        • Descendant Of Sssmith 3.2.2.4

          This isn’t about surviving though is it Bob.

          Chorus made a profit. Instead of putting that profit into the cost of meeting the contract they bid on they paid it out to shareholders.

          It’s about maintaining the capital value of the shares and the revenue stream for those who invested in them.

          The world would not end if they made no profit for a couple of years and paid no dividends would it.

          Plenty of companies actually make losses while they invest in infrastructure.

          Let’s also not forget that as Telecom they took massive amounts of profit that should have been used for future investment. Those same shareholders took those profits in dividends – they should now take the losses by way of no dividends and reduced share-price.

  4. Sable 4

    Keys and co screw up, as usual we all pay….”National the parasites party of New Zealand”…

  5. mikesh 5

    I think it would be appropriate in this situation to extract Chorus’s excess profits from this through the application of a windfall tax.

  6. Herodotus 6

    For the household to switch over to fibre will result in a one off cost: this cost will cover hook up for the fibre “line” to be blown down a duct to the boundary of the property, then connection from the boundary to the house, a station or box that will then distribute the connection thru the house. So the house will require some re wiring to swap from copper to fibre.
    And there are many instances whereby households are incurring every increasing costs, some as a consequence of govt policies, when we finally have an opportunity for some respite what happens ??? Protection of shareholder wealth at the expenses of the household budget by “our” govt.
    Even a blog site not 100% behind the left is against this protectionism
    http://www.kiwiblog.co.nz/2013/09/why_the_price_of_copper_boradband_should_be_lower.html\
    And from AA
    https://twitter.com/amyadamsMP
    “Under all options presented consumers will be paying less than they are now” – dear Amy its not about paying less its about paying a fair and commercial rate. Does she not understand ?? ;-(

    • Greywarbler 6.1

      Government is keen to get broadband rolled out to all households so they can then withdraw many services carried out by people who communicate and interact people to people, and will then be replaced by disembodied voices repeating in a loop that the phone lines are busy, there is a heavy demand on the system today, try ringing before 6 a.m. tomorrow. Or the computer system will break down with perhaps server after server going out in a cascade effect.

      Just another boys-own love of technology and the new. It will lead us to hopelessly overbaked pipe-dreams policy that will make us more vulnerable and most of us worse off.

  7. MrSmith 7

    National cut the Commerce Commission off at the knees early on, (some would say drowned it), now we only hear from them now and then, when they do speck up National shout them down.

    Starving the watch dog or removing it’s teeth, call it what you like, all the while increasing surveillance and control of the peasants.

    The Commerce Commission needs to be beefed up, but more importantly further insulated from political influence, after Labour/Green take the next election.

    • tc 7.1

      Agree mr smith, and it needs top people mandated to nail such slimy practices. The commcomm has been an abject failure in the last decade and a half removing many areas of limited competition.
      The rubber stamp on voda getting TClear being relevant in this discussion.

  8. tracey 8

    This pm knows more than comcom, law society. Former pm/writer of rma, leading qc, human rights commission… all of them are confuddled. Not our pm.

  9. Greywarbler 9

    Minny the Moocher says that it doesn’t seem fair that government acceptance of a tender as a contract can later be sliced and extra clauses inserted to suit the tenderee. Like gaining another $600,000 by over riding the Commerce Commission. She says that government doesn’t seem to understand what a tender is. She thinks they have an idea that it some fine and sensitive fabric that can be reinforced when required to make it firm and rigid and hard-wearing. Or perhaps they think it is an agreement after which the parties shake hands and kiss each other on the cheeks, French style – mwa, mwa. Tenderly.

    We manage to lose a lot of money in this country through fraud, other criminality, mismanagement – think IT and Novopay,and don’t forget police Incis, and all the others yet to be shown up as dodoes), then there is the time wasted in trying to find reasonable and appropriate rules and guidelines to contain the policies in an appropriate pipe with inspection hatches. And finally there is government itself fretting and pettishly throwing out considered policy and saying Poof! we don’t like that – we have looked at our principles and found better ones.

    I’m mooching off for a glass of water instead of the coffee I would like (and yes I’m lucky to be able to find some nice clean water accessable to me). I can’t afford coffee in this developed country full of the best pollies and policy and financial advisors in this best of All Possible Worlds.

  10. hellonearthis 10

    Areas where there is an alternative copper network (competition) those areas will be getting the cheaper rate. Disgusting behaviour.

  11. Gashead 11

    So consumers are told New Zealand’s high power prices are a result of global (upward) price pressures. Yet our internet prices are not subject to the same (downward) global pressures.

    Yet more double standards and double talk from this despicable National government.

    • lprent 11.1

      Ridiculous. There is no ability to transport power over thousands of km to the nearest external market. That means that overseas prices are irrelevant. Do you have a link?

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