Editorial: Govt must bite the bullet on copper pricing

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The Government finds itself in a difficult position because it and Chorus appear to have misjudged the provisions of the project's enabling legislation, the 2011 Telecommunications Amendment Act.  Photo / Richard Robinson
The Government finds itself in a difficult position because it and Chorus appear to have misjudged the provisions of the project's enabling legislation, the 2011 Telecommunications Amendment Act. Photo / Richard Robinson

Only in the most extraordinary of circumstances should any government consider over-ruling the Commerce Commission. The competition watchdog's final determination on the pricing of copper broadband connections is certainly not one of these. As much as the Government may feel discomfited by the effect of that ruling on a project into which it has poured much political and financial capital, the commission's independence must remain uppermost. To do otherwise would entail propping up the building of the ultra-fast broadband network at the expense of the consumer.

The Government finds itself in a difficult position because it and Chorus, the company chosen to install most of the network, appear to have misjudged the provisions of the project's enabling legislation, the 2011 Telecommunications Amendment Act. This required the commission to review copper connection charges. The Communications Minister, Amy Adams, says yesterday's ruling - which means Chorus can charge internet retailers $34.44 a month for a copper phone line with a broadband connection, a 23 per cent cut on what it charges now - came as a surprise to everyone involved.

It is difficult to see how that can be.

The watchdog followed the law, as required, giving due weight to international benchmarks as it calculated the cost of provision and added a reasonable return on capital. The Government and Chorus must have had more than an inkling of what that process would produce. Nevertheless, Ms Adams had proposed a figure of $37.50 to $42.50, a price comparable with faster fibre services. That calculation seems to owe something to wishful thinking or errant calculation.

Chorus made a similar blunder. It must also have been aware of the benchmarks that the commission would consider, but it may have thought the Government would prove malleable if the worst came to the worst. That was certainly the case for many years with Telecom, its former parent.

Yesterday, Chorus went into overdrive in its quest for government intervention, claiming the commission ruling would reduce its earnings before interest, tax depreciation and amortisation by $142 million a year. It would not, it said, be able to borrow what it needed to make up to a $3 billion investment in the broadband project.

Chorus implied this would mean it would not be able to complete its contract obligations. Therefore, if the Government wanted to safeguard an undertaking to which it has attached such importance, it would have to over-rule the commission, lend Chorus taxpayer funding, or take a stake in the company. If the first option is untenable, the others have very little more to commend them.

In both cases, the taxpayer would be funding a company paying the price for a serious miscalculation. It is, of course, of little comfort that the Government has already shown itself capable of doing just that to protect its interests. Its $30 million subsidy to Rio Tinto to keep open the Tiwai Pt aluminium smelter owed everything to its desire to complete a successful part-sale of Meridian Energy.

It has no need to use taxpayer money in a similarly cavalier manner this time. If Chorus finds itself unable to complete its part of the broadband project, there is surely no reason why the contract could not be re-tendered. Some of the companies that lost out to Chorus may simply have had a more realistic notion of the ramifications of the Commerce Commission's pricing review.

So, too, an independent watchdog will always be much more reliable in its analysis and oversight than a government with a barrow to push. The commission's independence must not be compromised, especially not by way of a subsidy to Chorus.

- NZ Herald

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