I blogged previously about Chorus and the Commerce Commission. The draft decision from the Commission would have seen a significant reduction in broadband prices. Chorus complained, Amy Adams brought out a discussion paper suggesting the Government would not follow the decision, and John Key suggested that Chorus could go broke.
The opposition to the proposed intervention came from an interesting variety of sources. Opponents include well known communist sympathisers Matthew Hooton and David Farrar who have both publicly opposed the proposal. Farrar said about the suggestion that Chorus would go broke:
But the reality is that Chorus would not go bust under the draft determination. They do not say they will. The market analysts do not say they will. Yes the draft determination will adversely impact their profitability and dividends, and that is bad for Chorus shareholders like myself. But that is one of the risks of investing in regulated monopolies.
The Commerce Commission has now released its final determination on the broadband charge for Chorus and the net result is a slight lessening of the reduction in charges.
Instead of celebrating Chorus have come out and hinted that its future viability may be at risk. It has said that the ability to complete the roll out will be compromised. It has said that unless the Government steps in now, it will discuss the matter with its lenders and rating agencies, notify its bank of a material adverse effect which could trigger a default, and “discuss with the Crown whether Chorus is still a credible UFB partner in the way intended at demerger and how Chorus might deliver the balance of its programme despite the very material funding gap in Chorus’ business implied by [the Commerce Commission] decision.”
But as I noted before Chorus’s problems appear to relate to the tender that it signed with the Government, and that the Commerce Commission review has been in the pipeline for some time.
I understand that Amy Adams has said that the Government will now sit down with Chorus to look at the numbers and come back with some options.
Pauls Brislen, head of TUANZ has come out and castigated the Government for its handling of the issue. He has released a press statement containing the following:
“Our view is that the Commerce Commission has applied Steven Joyce’s 2011 telecommunications legislation correctly and, at $34.44 per month, has come up with a fair price.”
Mr Brislen urged the government to let the benefits of the Commerce Commission ruling flow through to Kiwi households and businesses.
“Any price the government might now propose above $34.44 per month would represent an obvious tax on Kiwi households and businesses in order to subsidise Chorus, an already highly profitable monopolist. Even $35.50 would transfer over a million dollars a month from Kiwi households and businesses to Chorus shareholders, to no benefit to anyone else.”
Mr Brislen said any suggestion today’s price decision could have an impact on the rollout of the government’s ultra-fast broadband initiative (UFB) was “plain wrong”.
“The government has contracts with Chorus and others to build the new world-class fibre broadband network. Ministers should tell them to just get on and do it.
“The 30% of New Zealanders who are expected to want UFB by 2020 and the 75% of Kiwis who will eventually have access to it want it built to contract, while those who will never access to it obviously don’t want to pay a copper tax,” he said.
Mr Brislen said it would be wrong for there to be further confidential calls between Chorus chair Sue Sheldon and the prime minister on the matter.
“There must be transparency in the dealings between regulated monopolists and the government.”
The behaviour of this Government is extraordinary.
It sells off well functioning strategically important assets. It mismanages others. It has mucked up the broadband regulatory process and the roll out of fibre that badly that the entity responsible for the roll out is seeking to back out. It appears to now be doing a shonky back room deal so that a large Corporate can maintain its profitability. The quality of the decision making in each of these areas is appallingly bad.
If ever you wanted to see what a mess the Government is in on this issue then watch the following question from parliament. And enjoy …
Update: David Farrar sets out very elegantly why the Government should not directly deal with Chorus and should instead take its time on this issue.
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