Govt may overturn 'very problematic' Chorus pricing decision, says Key

The government will not rule out legislating to get the outcome it wants. UPDATED: High-profile investor says Commerce Commission decisions have wiped half a billion market cap from Chorus, Vector and Sky TV.

High-profile investor Aaron Bhatnagar says Prime Minister John Key is right to consider leglislation that would over-rule a draft Commerce Commission decision to slash would Chorus can charge for copper wire broadband.

The draft decision saw Chorus [NZX:CNU] plunge 14.41% or 49 cents to $2.90 – three cents below its December IPO price 12 months ago.

Yesterday, Mr Key said cheaper copper lines could threaten uptake of fibre under the government's $1.35 billion Ultrafast Broadband (UFB) rollout, 70% of which is being carried out by Chorus.

"I don't recall anyone voting for the Commerce Commission to deliver New Zealand superior infrastructure. It was John Key who was mandated by the public to deliver a step-change in New Zealand's infrastructure," Mr Bhatnagar told NBR ONLINE.

"From a public policy perspective, it is wrong for government organisations like the Commerce Commission to be delivering changes that are hugely at odds with the government's desire to deliver on fibre, and where the government itself it spending huge sums of taxpayer money to deliver outcomes.

"At the very least, the commission should seek some determinations from government ministers on taking into account how its operational framework works with mandated government flagship policies.

"This might require a law change. Mark Ratcliffe from Chorus is right that the government should bring forward the 2016 regulatory review, because there is no certainty in how the commission is operating."

Telecommunications Users' Association head Paul Brislen disagreed.

"I'm quite surprised to see the Prime Minister wading into the discussion," he told NBR.

"It was, after all, this government which introduced the new Telecommunications Act which includes the requirement that Chorus wholesale services be assessed on a cost basis rather than 'retail minus'.

"The draft Commerce Commission decision is just that - a draft - and the process from here is well laid out. To intervene at this point in the process is to usurp the role of the Commission and to sideline the views of the entire industry in favour of the views of one participant in the industry. Regardless of whether the $8.93 price point is acceptable to all parties, having the PM jump in at this point is not helpful."

Yesterday, Telecommunications Commissioner Stephen Gale told NBR it was not his statutory role to promote fibre uptake, but rather to monitor incentives around the uptake of new broadband technologies, which could also include technologies like VDSL that boost speed over copper lines.

"It will not have escaped the government's attention that the commission has now delivered outcomes that are significantly injurious to some of New Zealand's biggest companies in less than a 12-month period – Sky TV, Vector and Chorus twice," Mr  Bhatnagar says.

"This year alone, there have been market stampedes that have wiped out over half a billion dollars from these companies – about $150 million from Chorus in early May, about $150 million from Sky TV in mid-May, just under $200 million for Chorus from yesterday and around $150 million with Vector in late October."

This may be indicative of cultural issues at the ComCom that the government may wish to address, the investor says.

However, a UFB booster would note that if Mr Key's aim is to boost fibre uptake, then the commission's investigation into Sky TV's content deals, and whether they prevent new market entrants from gaining a critical mass of content, could benefit the new broadband technology. 

Dec 3: The Telecommunications Commissioner's draft decision on access to switchgear on the copper telecommunications network is "very problematic" and the government will not rule out legislating to get the outcome it wants, Prime Minister John Key says.

His comments came as shares in the copper network owner, Chorus, fell 14% to $2.91, three cents lower than its listing price when it was separated from Telecom in November last year as a fundamental part of reforms associated with the government's $1.35 billion subsidy for an ultra-fast broadband network.

Telecommunications Commissioner Stephen Gale's decision is good for consumers, at least short term, because it requires lower than expected prices for access to the existing telecommunications network, which is based on copper wire.

But it threatens to undermine the uptake of UFB by making copper more competitively priced than the new fibre-based network.

Copper-based services are unable to deliver broadband speeds as high as through the UFB fibre network, but technology improvements make it very fast and lower prices could keep it competitive with UFB for longer.

The UFB network is a flagship government policy, but requires uptake of UFB to ensure rollout of the network continues to spread, as revenues from uptake will be funnelled back into further expanding the network.

If consumers stay with copper-based services for longer, the UFB rollout risks stalling for lack of demand.

Mr Key pointed out at his post-Cabinet press conference that an earlier draft decision from Mr Gale's predecessor, Ross Patterson, on pricing for the unbundled local loop had been substantially modified after submissions.

Both Chorus and Telecommunications Minister Amy Adams had indicated serious concerns about the draft decision on unbundled bitstream access (UBA) before Mr Key's comments, with Chorus warning it could cut earnings by up to $160 million a year.

With reporting by BusinessDesk

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