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John Key caught out on Chorus, Curran says

UPDATE: A rep for Amy Adams' office responds: 

  1. Goldman Sachs' modelled in that report a minimum regulated price payable to Chorus for UBA of $45.12 (compared to a Commission price of $34.44)
  2. The section of the report cited by Claire Curran is headed with “Our ISP analysis suggests market pricing may already be at its lowest point”.  There is no legitimate way to claim that Goldman Sachs were predicting a 50% drop in UBA prices.
  3. The $8.47 price cited was merely Goldman Sach's estimate of the cost other ISPs would face if they were provide a UBA equivalent service to a very small segment of the population:

a.    only in urban areas (whereas the UBA price applied to Chorus has to also cover providing more expensive broadband to rural customers); and

b.    only on non-cabinetised lines (thereby excluding the cost of providing backhaul between the cabinet and the exchange, a known driver of UBA costs).

"Goldman Sachs was clearly not expecting the UBA pricing changes to have a major impact on the market."

John Key has been caught out  today in making misleading statements on the Chorus debacle, Labour associate ICT spokesperson Clare Curran says.

“A Goldman Sachs report from November 2011 reveals that at least one financial analyst predicted the wholesale price of copper would fall and provided an estimate for smaller telcos of $8.47 per month which was significantly less than the final price of $10.92 a month announced by the Commerce Commission," says Ms Curran, who forwarded NBR exerts from the report.

“John Key and his Communications Minister have been saying for weeks that no financial analysts had predicted the extent of the fall in the copper price," Ms Curran says.

“Yesterday he was reported in NBR as saying “No one anticipated the magnitude of the fall.

“On 6 November he said: ‘There were many, many analysts who looked at the situation as a result of the legislation that was brought in, and in fact, at the contract that Chorus signed, and not one analyst actually noted that there was a significant likelihood that there would be such a dramatic decrease in the copper price.’

“On the 4 November his own Communications Minister Amy Adams said the commission's rulings had come as a surprise to everyone involved. ‘No analysts or companies saw that coming, no one priced it in.’

“The Goldman Sachs forecast implied that Goldman Sachs’ expectation was for a significant reduction in pricing – certainly lower than the Commerce Commissions determined price."

Chorus’s own first prospectus released in September 2011 said there is a risk that the regulator will set prices that do not provide New Chorus with an adequate return on its assets, Ms Curran says.

“For the Government to now claim ‘no-one knew it was going to be that low’ is simply wrong."

Chorus shares [NZX:CNU] stabilised today, closing up 0.69% to $1.45 as Ms Adams suggested the EY report into the company would be fast-tracked, and that the company's UFB contract could be renegotiated.

More by NBR Staff

Comments and questions

So Amy Adams' office is arguing that even though a Goldman Sachs informed them Chorus' competitors could sell localised UBA as low as $8.47, the price offered by Chorus for UBA would not decrease?

This government was voted in for their self-proclaimed fiscal expertise, and here they're saying that the potential for Chorus to be undercut by over 40% by competitors didn't raise any alarms in the ongoing price stability of UBA?

Asset sales to fund capital works, but the sales generated less than forecast and the capital works are costing more. This is mismanagement on all levels, an embarrassment for a so called economically responsible government and an unfair burden on tax payers.

You’ve missed the point. The $8.47 is UBA can only be delivered by cherry-picking. The cost of supplying UBA from the Auckland exchange may be $2, but Chorus has a national price to supply a national service. Adams office appears to be saying that GS figure omitted cabinetised and rural lines, so the $8.47 is very misleading in that context.

Took Chorus 5 days recently and only after numerous phone calls via Telecom to get internet to my new place.

Chorus - big fat lazy inefficient monopoly.

High time it gets its comeuppance and let's hope Vector or someone else takes over the UFB contract.

In reply to And Justice For All, I cannot agree more.
None of this should come as any surprise at all to those of us like myself who have had a close association with companies like (and including Chorus) for many years, and who understand the Chorus DNA. What we have with Chorus is a company which acts in exactly the same immature and billigerent manor that it's former parent (Telecom) acted. That is why we see investors leaving Chorus stock in droves. It seems clear to all now that this company underpriced their tender for the massive UFB project, safe in the knowledge that when push came to shove, they could strong-arm a compliant NZ government for more tax-payer money. Like "And Justice For All", I would now be more than happy to see this bloated and inept tax-payer funded corporate fall on it's sword.

Typical comments from those who want something for nothing. All part of the new entltlement that exists in NZ. Expect investors to stump up BILLIONs of dollars for infrastructure and get it for free or next to nothing.
How dare those who stump up the Billions expect a fair return on their investment.

More bludgers who want it all want it now and want it for free