Hamish Fletcher

Business reporter for the NZ Herald

Stop Govt broadband intervention - Vodafone

Contractors laying fibre optic cable as part of the nationwide ultra fast broadband rollout.
Contractors laying fibre optic cable as part of the nationwide ultra fast broadband rollout.

Vodafone has hit out at "ill-conceived" intervention in the copper broadband market proposed by the Government and labelled it as corporate welfare to lines company Chorus.

On the other hand, former Telecommunications Commissioner Ross Patterson has emerged on the other side of the debate and supports the Government wading into copper pricing regulation.

The tussle over copper phone lines regulation flared recently with the launch of a campaign by Coalition for Fair internet Pricing, which argued proposed Government intervention would effectively put a new tax on broadband consumers.

New Zealand's second biggest telco, Vodafone, is not named as part of the coalition but in its submissions on the issue today said the Government "must stop this ill-conceived intervention to raise copper prices above cost".

Yesterday the Herald revealed Economic Development Minister Steven Joyce persuaded would-be participants in the coalition's campaign not to take part.

Vodafone said last week it had been working with the coalition, and was closely aligned with its aims, but had chosen not to be involved. It denied any pressure from the Beehive.

The brouhaha over Government intervention stems back to last December when the Commerce Commission suggested it could cut what Chorus charges retailers for access to wholesale copper internet services by $12 a month.

This sent Chorus' share price tanking and about $190 million of shareholder value was wiped off the company the day of the announcement. Chorus said the commission's draft pricing decision could shave $150 million to $160 million off its pre-tax earnings if finalised.

Chorus complained if copper pricing was pitched too low, it would kill customer appetite for fibre services being rolled out as part of the Government's $1.5 billion ultra-fast broadband network.

The Government signalled it would intervene and in February fast-tracked a review of telecommunications law.

As part of this review, Communications and IT Minister Amy Adams issued a discussion document proposing setting Chorus' wholesale charge for copper line services between $37.50 and $42.50 a month - the same price as faster fibre services.

This is up to $10 higher than the Commerce Commission's proposal last year.

The Coalition for Fair internet Pricing is rallying against the change, saying it was effectively a $600 million tax on broadband customers.

Vodafone's argument is much the same.

"This intervention is quite simply a stealth copper tax on all consumers with no justification," Vodafone's submissions said.

"There is no evidence to suggest UFB objectives are at risk. This proposal acts on a whim to deliver unnecessary corporate welfare to Chorus, at expense of all consumers who will pay more for telecommunications services."

"Stop the intervention on copper prices. Existing policy settings are correct, clear and certain. The Commission should be allowed to set copper prices as intended. Intervention to stop this is not required, and only highlights the Government's conflicted role. All three options [presented in the discussion document] will damage competition, raise prices for consumers and do nothing to address issues that are equally important for securing a fibre future."

But Patterson has emerged as a supporter of intervention saying the current regulatory environment did not support the move to fibre services

Patterson left the commission last year and is now involved with a Dubai-based consultancy firm. His views were included in Chorus's submission to the Government that backs intervention in the copper market.

See his report here.

He said the type of intervention proposed in the Government discussion document last month was a "practical option".

"The relative pricing of copper and fibre services was a key element of the migration strategy that was built into the contractual component of the regulatory environment," Patterson said.

Patterson said contracts between fibre companies and the Crown included a loss-leader entry level fibre product, which was "deliberately set to undercut the then anticipated copper price".

Changes to copper pricing that could be made under the existing regime "would completely undermine the loss leader fibre pricing strategy", he said.

"The Government has made it clear that it does not intend to provide a demand side subsidy to incentivise migration to fibre. Under those circumstances the only practical option is to adjust copper pricing along the lines proposed in the Discussion Document."

Patterson said a new statement should be added to regulations "that makes it clear that the UFB initiative is to replace the existing copper network, and that outcome is for the long term benefit of end users of telecommunications services within New Zealand".

Chorus said in a statement that it supports the Government stepping in.

"It is clear that the current framework is no longer fit for purpose," it said in a release about its submission to the Government on the issue..

"The submission outlines why Chorus believes the current framework is broken and why the Government is right to intervene. It also explains the specific changes to the copper pricing regime that would support the transition to fibre as well as the benefits that are being delivered to end users," the market release said.

Chorus said the submission also includes reports from three independent ex-regulators, Patterson, Richard Hooper CBE, and Professor Stephen Littlechild.

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on production bpcf03 at 22 Dec 2014 11:02:19 Processing Time: 244ms