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Pressed by Curran, Key reaffirms govt willing to overrule Commerce Commission on Chorus pricing

On Monday, former Telecommunications Commissioner Ross Patterson wrote a pointed editorial, accusing the government of "unprecedented" political interference with its refusal to rule out legislation that could overrule a draft Commerce Commission ruling that would slash what Chorus can charge for phone lines.

Yesterday, Prime Minister John Key had an opportunity to edge back from his original comments as Clare Curran questioned him in parliament.

He did not.

Here's the Hansard transcript:

CLARE CURRAN (Labour—Dunedin South) to the PRIME MINISTER: Does he stand by all his statements?

Rt Hon JOHN KEY (Prime Minister): Yes.

CURRAN: Does he stand by his statements regarding the draft Commerce Commission recommendations for wholesale broadband pricing, that “in its current form it would be very problematic” because “it substantially reduces the income of that company”, referring to Chorus , the Crown-back ultra-fast broadband network?

KEY: Yes.

CURRAN: Why does he want most New Zealand households to pay around $12 a month more for their phone and internet services than they otherwise would?

KEY: Firstly, I would reject the proposition that they would be paying more. Secondly, I think it is important that New Zealand has a roll-out of ultra-fast  broadband. Thirdly, it is quite correct that the Government has taken a very close look at that  Commerce Commission ruling, which is an interim ruling.

CURRAN: Does he believe that it is a fundamental principle of our telecommunications regulatory regime that the regulator is independent to carry out its role without interference or undue political influence?

KEY: Of course. They are free to go about their work. The Government then is free to decide whether it wants to adopt that.

CURRAN: Will he rule out legislation if the  Commerce Commission comes back with a final decision that his Government does not agree with?

KEY: Definitely not.

"Unfortunately for the Prime Minister, the Telcommunications Act as it stands doesn’t allow the government to “decide whether it wants to adopt that” at all," Telecommunications Users' Association head Paul Brislen says.

"Far from it – the Act requires the Commissioner to make the decision."

But the Prime Minister, of course, is talking about changing the law.

Ms Curran has also seized on comments from ICT Minister Amy Adams that should the Commerce Commission's draft recommendation to slash Chorus line pricing go through (in two years' time, subject to industry consultation), the cuts are unlikely to flow through to consumers.

For broadband customers, and Chorus shareholders, these remain uncertain times.

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Comments and questions

Good, I bought shares on the hunch that National would never let this happen.

I am very uncomfortable with the intent of the Prime Minister's comments. I think he risks underestimating the moral barometer of New Zealanders on this issue. Disadvantaging New Zealanders in order to protect a company that freely entered into a contract to build fibre with government funding... it's just wrong.

Curran, like all the Socialist Party members, don't understand commerce. They live in a fairyland when the Gumint pays for everything and it doesn't cost the voters anything. She needs to get a grip on reality. If Chorus goes broke there ain't gonna be UFB rollout.

Its a shame many who want phone lines, UFB, great IT infrastructure can't figure it out that no company is going to do it for free. Unbundling Telecom and the now Chorus was a great move. Govts now and in the future will be able to have more influence over the infrastructure provider and get significant public utility and value.

The phone lines, whether copper or fibre, are becoming as important as roads and with NZ's minuscule scale very few, if any, providers of copper or fibre would bother, except perhaps in Auckland.

Too many want and simply expect the govt to give. Well, that giving is either tax income from all sources or debt borrowed off overseas investors. Far better for the govt to tilt the commercial playing field slightly so that an infrastructure provider can 1) deliver what the govt believes all NZers need strategically, and 2) make a fair profit, which in the case of many NZ listed companies is delivered back to the economy as dividends or reinvested in improved assets.

Disclosure: And yes, I also bought more Chorus shares on the slump.

Chris, the Government has tilted the commercial playing field to build fibre by providing $1.3b in interest free funding of which Chorus gets ~$950m I think.

Why should Chorus get two handouts when the other LFCs don't?

Why should the Chorus shareholders get a cash benefit from an inflated copper price today as well as the long term benefit of the interest free funding?

It seems to me that as a tax payer and copper based broadband user, I will be propping Chorus and its shareholders up so the government can save face on its fibre policy.

Don't get me wrong, I want better broadband as much as anyone but it just seems to me that this might become a little unravelled whereby the few who have Chorus shares (and over 80% are in foreign hands) benefit at the expense of the NZ taxpayer and most broadband users.

Political interference in New Zealand telecommunications regulation is not new. In May 2007, David Cunliffe determined that he, and not the Commissioner would oversee functional separation of Telecom because (I paraphrase) 'it was too important a matter to trust to the Commission'. The Key government has already intervened in the industry (one might say trodden all over it with hobnail boots) by investing in the fibre network in the first place. It seems to be a little precious for the former Commissioner to talk of unprecedented political interference in industry regulation in light of these historic actions.

It also behoves the former Commissioner to recall that it was on his watch that s 19(A) was added to the Telecommunications Act. (Section 19A: inserted, on 22 December 2006, by section 9 of the Telecommunications Amendment Act (No 2) 2006 (2006 No 83).)
This section states
"In the exercise of its powers under Schedule 3, the Commission must have regard to any economic policies of the Government that are transmitted, in writing, to the Commission by the Minister.
(2)The Minister must, as soon as practicable after transmitting a statement of economic policy of the Government to the Commission under subsection (1),—
(a)arrange for a copy of that statement to be published in the Gazette; and
(b)present a copy of that statement to the House of Representatives.
(3)To avoid doubt, a statement of economic policy of the Government transmitted to the Commission under this section is not a direction for the purposes of Part 3 of the Crown Entities Act 2004."requires the Commissioner to take note of Government policy notified in writing"

So Government intervention by directing the Commission may be unprecedented if it occurs, but not illegal if the aforementioned processes are followed.

Moreover, it is totally incomprehensible that the government would be both the major investor in a technology and appointer and paymaster of the regulator who governs the network that competes with the technology and NOT be tempted to use its perfectly legitimate legislative powers to skew the pitch if it seemed that its policy objectives were at risk - it does not take a rocket scientist to see that this matters more when the government has a shaky hold on power and an election is looming. .

So none of what is occurring currently is in the slightest bit unexpected. Before the 2006 Act was passed, Telecom was a respected company with a credit rating in the mid to high As. Successive government interventions have led to the decimation of both Telecom's and Chorus's share prices and Chorus now languishes with a BAA credit rating (unprecedented developed world telecommunications markets, even in the face of the world's economic meltdown). The market has taken on board that the greater is government intervention in the sector, the greater is the risk to private sector investment. NZ now has one of the most government-interventionist telecommunications policies in the OECD. The evidence is laid bare for all to see.