NZ Herald business editor at large

Liam Dann: Govt broadband dithering fuels Chorus slump

National has a lot of political capital tied up in Chorus building the new ultra-fast broadband network. Photo / APN
National has a lot of political capital tied up in Chorus building the new ultra-fast broadband network. Photo / APN

Has the Government lost its mojo? It is dealing with the broadband pricing issue the way my 5-year-old removes a Band-Aid - slowly and painfully.

Unlike my 5-year-old - who has never been a fan of the short, sharp shock - John Key didn't used to blink twice on the tough calls.

At least that is how I remember the swaggering, poll-topping Nats of the relatively recent past.

Last week the Government kicked for touch on broadband pricing - commissioning an independent probe to tell it what it should do next. In doing so it achieved exactly the kind of destabilising, value-destroying market meltdown it used to berate Labour about.

Chorus shares took a battering. On Tuesday as the Commerce Commission recommended cutting the wholesale price that it can charge for broadband on its copper network, shares slumped nearly 7 per cent.

But despite investors not liking the news, there was still confidence that the Government would intervene and soften the ruling.

That seemed to evaporate over the rest of the week as the Government dithered. Shares fell another 5.5 per cent on Wednesday, 10 per cent on Thursday and another five on Friday.

That added up to a fall of 23 per cent (an appropriate number given it is also the size of the price cut recommended by the Commerce Commission).

So about a quarter of a billion dollars of value was wiped off Chorus' market cap in less than a week.

Whatever the complexity of the situation, that is not a result any government should be proud of - especially not an allegedly market- savvy National Government.

Perhaps the investors are mugs who should have already priced in the hit to Chorus' bottom line. The Commerce Commission warned these pricing cuts were coming on December 3 last year.

But John Key started hinting at the prospect of intervention within hours of that announcement - calling the draft proposal "problematic".

National seems to have succeeded in keeping investors reassured until almost the last minute. Perhaps the campaigning of the Coalition for Fair Internet Pricing lobby group has spooked the Government. It has been a well run and highly credible campaign.

But if so, the Nats are looking a bit soft.

After all there is more at stake here than just the retirement funds of a bunch of potential National voters.

Chorus has to build 70 per cent of the new ultra-fast broadband network and National has a lot of political capital tied up in making that work. If Chorus goes broke it won't be a great look.

I guess the theory is an independent report could get the Government off the hook. If it finds that the commission ruling does endanger the UFB build, then it makes it easier to intervene. If it finds Chorus is exaggerating, then it provides an excuse not to. But the choices are already pretty stark and the Government can't keep both sides happy.

In a more confident mood it might have backed its own judgment and its ability to sell the decision. In doing so it would have provided market certainty and given the impression that it is in control of the issue.

Right now on this issue the Government looks paralysed with indecision and if Chorus shares continue to fall it may face a far more complex set of choices - including bailing out the beleaguered company just to keep the UFB on track.

Alternatively, and more likely, we'll see the Government over-rule the Commerce Commission and soften the cuts - as it has hinted it will do all along.

In which case what has been the point of the dithering? It has created an unsightly market panic and prolonged the opportunity for the Opposition and consumer groups to grab headlines.

The only upside for the Government in the timing of all this is the prospect that the independent report may arrive right into the Christmas holiday rush.

Cynics might want to watch out for an announcement during that cheeky two-day working week that the Wednesday Christmas creates this year.

But you'd have to be pretty cynical, wouldn't you?

- NZ Herald

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NZ Herald business editor at large

Liam Dann is business editor at large at the New Zealand Herald. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy. He hosts The Economy Hub video show every Thursday.

Read more by Liam Dann

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