CallPlus confirms lawsuit against Amy Adams over telco review, 'copper tax'
UPDATE 10.30am: CallPlus has confirms it has filed proceedings against the government in High Court at Wellington over its controversial review of the Telecommunications Act (2001).
The review proposed three options, all of which involved over-ruling the Commerce Commission (which proposed a 25% cut in Chorus wholesale copper line pricing), and the government directly setting the price. Monday, the Commerce Commission made its final determination, ruling Chorus should cut its pricing by 23%.
The Coalition for Fair Internet Pricing, of which CallPlus is a member, calls the difference between the Commerce Commission's steep cut and the modest trim proposed via the government's Telco Act review the "copper tax'.
Today's CallPlus filing, which names ICT Minister Amy Adams as the Respondent, seeks a judicial review and declaratory judgment that the government’s review of the Telco Act does not comply with section 157AA of the Act and therefore cannot proceed.
In its statement of claim, the ISP says the terms of the government's review are much too narrow, focussing only on Chorus' wholesale copper line pricing when it is bound by section 157AA to also take in factors such as the extent of network coverage, the level of investment in fibre and copper, developments in wireless technology and the ability of access providers to achieve a reasonal rate of return on their investments - the latter presumably a reference to CallPlus $10 million investment in moving its own gear into Chorus phone exchanges (so-called local loop unbundling).
Earlier this morning, Ms Adams announced an independent review into Chorus' financial position and capability.
CallPlus CEO Mark Callander tells NBR he welcomes the review "but that is a separate issue and does not impact the proceedings that we have issued this morning."
Wigley & Co principal Michael Wigley is representing CallPlus in its High Court action.
(See end of story for RAW DATA - CallPlus statement.)
CallPlus will sue Adams this morning - Coalition source
Nov 7, 8.30am: ISP CallPlus will sue ICT Minister Amy Adams, a source inside the Coalition for Fair Internet Pricing tells NBR ONLINE.
The action will be taken this morniing, "challenging the the legitimacy of her telecommunications review process."
When approached by NBR, CallPlus CEO Mark Callander refused to confirm or deny he was heading to the High Court.
The leak from the coalition camp was followed just a half hour later by Amy Adams yieldiing to a key coalition demand and annoucing an independent review of Chorus - it remains to be seen whether that will be enough to head-off or temper the lawsuit. The inside word is that it won't mollify CallPlus.
CallPlus (which includes the Slingshot and Flip consumer brands) belongs to the Coalition for Fair Internet Pricing, which is pushing for the government to uphold a Commerce Commission determination that Chorus must cut its wholesale copper line charges by 23%.
Other members include Orcon, InternetNZ, Tuanz and Consumer.
Assuming it goes ahead, the CallPlus legal action will be lodged at a nervous time for the industry.
Chorus says if the Commerce Commission's 23% cut goes ahead, it will leave the company with a "$1 billion shortfall", meaning it will not be able to borrow enough funds to complete the UFB. Analysts boosting the stock are now wondering why the government hasn't immediately made good on its promise to over-ride the regulator with changes to the Telecommunications Act. Is it leaving a diplomatic pause, or is it genuiinely reassessing the situation?
Dark comments from Chorus saw S&P and Moodys put it on a downgrade review yesterday. The Coalition said it did not believe Chorus' take, and rolled out research by an Auckland University academic that says Chorus is at "no risk of financial distress."
'Outrageous' that Adams planning private sit-down with Chorus - Coalition
Nov 5: The Coalition for Fair Internet Pricing has seized on a comment by ICT Minister Amy Adams today, in which she implies a private sit-down with Chorus following a controversial Commerce Commission recommendation to slash the wholesale price of copper broadband.
"The number has come out this morning and now as the PM said, we need to work through that in some detail, sit down with Chorus now that it's public, really go through their numbers and look at the options and come back with some options reasonably quickly," Ms Adams told a press conference.
NBR was not present, but was forwarded an audio recording.
“Any suggestion of a third price-setting process, involving only the government and the monopolist Chorus, is outrageous," Coalition spokesman and Tuanz CEO Paul Brislen told NBR.
No one from the government should hold private talks with Chorus outside the publicly announced price-setting processes, Mr Brislen says.
Ms Adams did not directly respond to a question from NBR but her office forwarded her explanatory tweet, "what I said was that we would take time to go thru Chorus' numbers to satisfy ourselves re their claims of threat to UFB."
@paulbrislen what I said was that we would take time to go thru Chorus' numbers to satisfy ourselves re their claims of threat to UFB— Amy Adams (@amyadamsMP) November 5, 2013
The press conference was also notable for Prime Minister John Key's refusal to rule out the government taking an equity stake in Chorus, or lending the company more money for the UFB rollout.
The Crown is already investing $928 million in Chorus - half in the form of non-voting shares, half in interest-free debt securities.
Equity analysts spoken to by NBR this morning were disappointed by the muted reaction from Mr Key and Ms Adams, who have said they will take advice from MBIE and Treasury before deciding on next steps.
Prime Minister John Key earlier said the government would intervene to over-rule the Commerce Commission if stuck to its decision to slash copper broadband pricing by 25% (in the end it plumped for 23%), which the PM says could send Chorus broke and imperil the UFB rollout. But now that the decision had come through, the government was not immediately making good on its promise to over-rule the regulator with legislation but is instead assessing its options.
"It's not encouraging," Craigs Investment Partners' Arie Dekker told NBR.
Ms Adams did not immediately return a request for comment.
RAW DATA: CallPlus statement
Copper Tax proposal heads to court
CallPlus Limited has filed proceedings in the High Court in Wellington seeking a judicial review and declaratory judgment that the Government’s review of the Telecommunications Act 2001 does not comply with section 157AA of the Act and therefore cannot proceed.
Section 157AA of the Act requires the Government to commence a review of the policy framework for telecommunications regulation by the end of September 2016.
Section 157AA(3)(b) requires the minister to take into account ten factors, including:
1. the extent of network coverage of services provided on fibre, copper, wireless, and other telecommunications networks; and
2. the level of investment in fibre, copper, wireless, and other telecommunications networks, and the ability of access providers to recover that investment within a reasonable period; and
3. the ability of access providers to achieve, within a reasonable period, reasonable rates of return on their investment in telecommunications networks that adequately reflect the risks assumed by those access providers when the relevant investments were made; and
4. the level of competition in relevant telecommunications markets; and
5. the effects of the regulatory framework under this Act on investment in fibre, copper, wireless, and other telecommunications networks, and on outcomes for end-users; and
6. the sustainability of the regulatory framework under this Act, given developments in technology and convergence of traditional telecommunications markets; and
7. the importance of any regulatory intervention being proportionate, having regard to the problems being addressed, the size of the relevant market, and the number and size of the potentially regulated entities; and
8. developments in wireless solutions and whether they should be part of any telecommunications regulation; and
9. experience in comparable jurisdictions and economic relations with Australia, weighed against what is appropriate for New Zealand conditions and the make-up and history of New Zealand's telecommunications markets; and
10. any other matters that the Minister considers relevant.
The discussion document has only dealt with the pricing of Chorus’s copper broadband and voice services network. It has failed to address any of the matters mandated under 157AA(3)(b) of the Act which should be a critical part of the review process.
“We have some concerns that the Government has not taken into account a number of factors that will have a material impact on the competitive market and most importantly our customers. The Government should stop the consultation process as it would be wrong to launch major new policy initiatives or legislation until this matter has been reviewed“ says Mark Callander, CEO of CallPlus.