At least part of the problem was the official government response to the ruling. Communications and Information Technology Minister Amy Adams issued a brief placeholder statement: “Now that the final UBA price is known, the Government will consider its options in detail before making any further decisions”. In the short-term the statement does little to reduce uncertainty.
In simple terms, the ruling means instead of cutting the wholesale access price by $10 a month, it will now fall by $8 a month. At the time of the earlier ruling Chorus said the $10 a month cut would cost its shareholders $150 million a year. Simple maths says that figure is now $120 million a year.
For an organisation that has just been handed $30 million a year, Chorus’ response was sullen. It called the decision a regulatory black hole.
Chorus CEO Mark Ratcliffe says: “We are intensely disappointed with today’s decision. We are proud of our role as a cornerstone partner in delivering the Government’s vision to build a fibre future for New Zealand. Chorus is ahead in its UFB build programme, is leading an industry transition to fibre and making other investment to improve broadband in New Zealand. But unless the Government intervenes, it is likely that the benefits for New Zealand will be significantly compromised”.
Chorus says the Commerce Commission price is below the cost of providing the service. That’s questionable. It goes on to say it is ”now set to take up its option to move to a full economic cost model for the UBA price”. If that process goes ahead it will probably take two years.
The company says it will need to discuss the decision with its lenders and the rating agencies who watch its credit rating. Chorus also says it will tell the banks the price change is going to change its borrowing requirements – something that could trigger a default and by extension put the government sponsored UFB project at risk.
Frankly no-one thinks that’s going to happen. The government has already talked of stepping in. Prime Minster John Key has made it clear intervention is likely. More direct government money is unlikely. One way or another consumers and the telecommunications companies that buy services from Chorus will end up footing the bill.
It’s possible the government will overrule the Commerce Commission, but the implications of that happening are huge. It means company affected by Commission rulings simply need to step up their political lobbying efforts to win huge financial concessions.
The problem is that intervention is politically unpopular. There’s little public support or sympathy for Chorus and even less support from the telecommunications sector. Many companies have joined a group to lobby against what they describe as a copper tax.
All-in-all the government is trapped. Help Chorus and be seen to play favourites, pouring the public’s money into the pockets of already rich investors. Don’t help Chorus and put the fibre project – one of the first National government’s most notable achievements – at risk. Time for some fresh, clever thinking.