UPDATE / 10.30am: Chorus shares [NZX:CNU] were up more than 10% in early trading after the government followed through on its threat to over-rule the Commerce Commission's draft ruling to slash wholesale line prices - or at least to put a freeze on the watchdog.
The Telecom spin-off's shares fell sharply before Christmas (see chart right) when the Commission proposed slashing what Chorus could charge. Chorus said the cuts would wipe 40% from its earnings from December next year.
High profile investor Aaron Bhatnagar (who sold his Chorus shares) told NBR ONLINE the Commerce Commission was being overly assertive. While cheered by this morning's statement, he added; "There are two issues that still need addressing. There needs to be a regard for an 'acceptable rate of return' for regulated businesses to provide certainty when investing in big ticket infrastructure, as there is in Australia. Secondly, the Commerce Commission should also have regard to the government's National Infrastructure Plan, so there are no glaring divergences in Commerce Commission operations and the government's infrastructure strategy."
Labour: stall will cost households $400
Labour’s ICT spokeswoman Clare Curran says the Commission's proposed wholesale price cuts would have saved $12 a month on the average home line - or $396 over the 33-month delay (the amount assumes retails ISPs and phone companies would pass the saving directly on to customers).
“Amy Adams and John Key are yet again putting their private investor friends ahead of Kiwi families. This law review is a smokescreen cut in a smoke-filled room to save the Government from unethically overriding the Commerce Commission through legislation. Keeping copper prices artificially high only benefits Chorus’ profits.
“This is a legal mess and it’s Steven Joyce’s creation. Unfortunately it’s too much for Amy Adams to handle so she’s kicked the Commerce Commission can down the road for three years. That’s not fixing, that’s fudging.
“The truth is this review is overruling an independent regulator and it’s even more underhand than legislating. New law would be open to Parliament’s scrutiny, but no one will know what went on behind closed doors. The lengths this Government will go to to protect its elite investor allies are breath-taking. The only supporters are the Government, Crown Fibre Holdings and Chorus."
Tuanz: political meddling leaves industry in limbo
This morning Telecommunications Users Association head Paul Brislen said that extending the review means we have a half-house regulatory regime in place until after this new review has been completed. That troubled him.
"In December I wrote about the regulatory process and why it's important to ensure politicians don't meddle in an ongoing process. Regulatory certainty only comes about via an arm's length process where investors can be sure the rules of the road are dictated by the regulator and not by the politicians of the day with one eye on the polls," Mr Brislen blogged this morning.
"All this has come about because a rule the government put in place when it last revamped the Telecommunications Act has proved unsavory. Chorus makes its money today from wholesaling copper services, yet by the end of the decade it will have built a fibre network that makes its copper lines surplus to requirements. Chorus (and Telecom before it) knew the rules going in. In exchange for separation, Chorus would win the UFB project and would expect to have the copper regulation set once and for all and left alone. That regulation would include moving from "retail minus" pricing to "cost plus" and that's exactly what the Commerce Commission has introduced.
"The government has chosen in effect to freeze that process and to leave the industry in limbo. We don't have new pricing for wholesale services and we now face an intensive round of lobbying on our new regulatory process, something which in an ideal world would be as bloodless and clinical as possible but which now will no doubt be rather more exciting than that."
9am: Telecommunications network operator Chorus has been given some breathing space over price regulation of its ageing copper lines after Communications Minister Amy Adams put the regulator's plans on hold pending a wider review of rules governing the sector.
The Commerce Commission will not be able to implement cost-based prices on unbundled bitstream access services on Chorus' copper lines until November 30, 2015, while the government embarks on its review and makes any changes, Ms Adams says in a statement.
The decision comes after Telecommunications Commissioner Stephen Gale surprised the Beehive when flagging plans to impose a monthly regulated price of $32.45 for UBA, down from $44.98 at present.
What rankled policymakers was that the draft determination seemed to undermine the government's stated aim of rolling out a nationwide fibre broadband network through subsidising Chorus and other partner companies, by making cheaper services on legacy copper more attractive to end consumers.
"Increased certainty around the transition path from copper to fibre will promote development of retail fibre products, boosting the ability of New Zealand homes, businesses, schools and hospitals to maximise the transformative potential of these technologies," Ms Adams says.
"One common message I have continually heard from consumers and industry is that they want certainty."
Chorus estimated the decision could shave 40 percent from its annual earnings, and the stock plunged after the announcement last year. The shares were unchanged at $2.86 yesterday.
"From an investor's perspective it's a good outcome," says Shane Solly, portfolio manager at Mint Asset Management. "It's appropriate to take some time to review policy implementation, to slow down and take a holistic approach."
Ms Adams has ordered a review of the Telecommunications Services Obligation and a wider review of the policy framework regulating telecommunications services.
The reviews will focus on long-term interests of consumers, while taking into account market structure, technology developments, competition and network investment, she says. Any legislative changes will be ushered through by the end of this year.
The announcement comes after submissions on the regulator's draft report showed a divide between those investing in the network, including Chorus, and those purchasing services from the company and group's representing end-consumers.
The Telecommunications Users Association said in its submission this week that it was "gravely concerned" over the potential for political interference after the commission had followed the law as it's written, fearing it could undermine the regulator's good work.
The lobby group said Chorus should not have been surprised by the draft decision, with the industry discussing the law at some length in the lead-up.
Wholesale prices for access to the copper lines were averaged as a result of legislation enabling Telecom to carve out its Chorus unit last year, something that annoyed rival telecommunications companies who said it would lift their costs.
At the time of the enabling legislation, Ministry of Economic Development officials downplayed concerns about the impact on copper-line prices, saying it wasn't "deemed significant" and that any increase in UCLL pricing may "have the positive impact of encouraging more investment and innovation on fibre".
This article is tagged with the following keywords. Find out more about MyNBR Tags
Most listened to
- ‘We’re failing to consider these people are entitled to due process’ – Damien Grant on state’s ‘pernicious’ assets seizures
- Vector CEO Simon Mackenzie on what’s wrong with the transmission price review
- Paul Goldsmith says it’s hard to argue against stronger rules for the insolvency industry
- ASB's Nathan Penny says milk prices will continue to lift, following today's 50c increase to Fonterra's milk price forecast
- Methven's David Banfield talks market share and profitability