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Government studies Chorus intervention options

New Zealand network operator Chorus is now likely to take an earnings hit as a political stand-off rules out further legislation.
Written by Rob O'Neill, Contributor

Without the Parliamentary majority needed to overrule the telecommunications market regulator, the New Zealand Government is studying a range of non-legislative options should intervention be required to ensure the country’s ultrafast broadband (UFB) network rollout is completed.

Yesterday all of the Government's likely Parliamentary partners indicated they would not support a change in the law to overrule the Commerce Commission’s decision to lower the price charged for copper broadband services.

That regulatory determination is now likely to stand and will tear a hole in network operator Chorus’s forecast revenues.

Chorus is the major contractor building the UFB network.

However, the scale of the financial impact on Chorus remains uncertain and is the subject of an independent review being conducted by Ernst & Young.

Telecommunications Users Association of New Zealand (TUANZ) chief executive, Paul Brislen, said first it had to be established intervention was necessary.

Brislen has fronted a long-running campaign by the Coalition for Fair Internet Pricing, which also includes consumer organisation ConsumerNZ, against Government efforts to overrule the regulator.

He said firstly Chorus may be able to address its own funding challenges simply by reviewing its dividend policy and pay less than originally planned to shareholders. At the moment there is still no clarity that anything more than that is required.

Chorus withdrew its dividend guidance earlier this month saying in light of  regulatory uncertainty it had elected to withdraw its guidance for 2014 of 25.5 cents per share.

“At this time of unprecedented levels of investment by Chorus, withdrawing dividend guidance is a regrettable but necessary step in light of the ongoing uncertainty Chorus faces,” CEO Mark Ratcliffe said.

If intervention is deemed needed, Brislen said, an array of options is available. These should have been considered from the moment the Commerce Commission issued its draft price determination a year ago, he added.

The most extreme option is included in the separation document from when Telecom was separated into two parts, a retail arm and a network operator – Chorus.

Brislen said a clause in the document says that if Chorus cannot deliver on its contract to build the UFB network, Government-owned Crown Fibre Holdings can assume control of the company, effectively as a statutory manager.

“That’s an extreme option, I’d have thought,” he said.

Another option is the Government could provide guarantees to Chorus’s bankers, he said.

It could also give more money to Chorus directly. If it did so, he said, such funding should be “wrapped in extreme caveats”.

It could abandon the UFB project altogether, but that would be politically unacceptable.

Another option would be to retender the UFB contract. Brislen said he would expect other network operators to jump at such an opportunity.

Finally, Brislen said, the Government could do nothing. It could let Chorus go broke, buy the assets “for a song” and use them to build a national open access network.

“There’s quite a few options other than overruling the regulator,” he said.

Yesterday Communications and Information Technology Minister Amy Adams said comments from some parliamentary parties that they would not support legislation in regards to copper pricing were not unexpected.

“While we have not sought support for legislation from our support parties, they have indicated to me that legislation was always going to be a challenge, so today’s announcement comes as no surprise,” Adams said.

She said the government has been considering non-legislative options for some time.

“Since the Commerce Commission’s decision was announced the Government’s approach has been consistently that the first priority is for Chorus to meet the shortfall itself.

“If this is not possible the Government would look at other non-legislative options as a first choice. Nothing in today’s public comments from some parliamentary parties changes that.

“The Government’s primary concern is to ensure that New Zealanders get access to ultra-fast broadband, because that is what is in the long-term interests of New Zealand.

“In order to properly assess the range of options, the Government has commissioned independent advice about Chorus’ financial position and its capability to deliver on its contractual obligations with the Government.”

Brislen said overall he is pleased the political parties have agreed with the Coalition for Fair Internet Pricing about the importance of the independence of the regulator.

“That is the important issue. The decisions the regulator makes are generally the right ones and they were about to take that away from us,” he said.

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