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John Key caught out on Chorus, Curran says

NBR Staff
Tue, 03 Dec 2013

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.

NBR Staff
Tue, 03 Dec 2013
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John Key caught out on Chorus, Curran says