Minister seeks independent review of Chorus' financial position

Communications and Information Technology Minister Amy Adams has instructed her officials to commission an independent assessment of Chorus’ financial position and its capability to deliver on its contractual commitments under the Ultra-Fast Broadband (UFB) and Rural Broadband (RB) initiatives. She has written to Chorus informing the company of her decision.

“In recent weeks, I have had the Ministry of Business Innovation and Employment (MBIE) work with external consultants to carry out an independent analysis of Chorus’ financial position across a range of pricing options, based on publicly-available information,” she says.

“To complement this work, I have decided to seek an independent assessment at arm’s length from the Government.

“In order to properly assess the range of options before the government, I have directed MBIE to work with Crown Fibre Holdings to commission independent advice to the government of Chorus’ financial position and capability to deliver on its contractual obligations with the government.”

The review would assess the impact of the Commerce Commission’s decisions on both the Unbundled Copper Local Loop and the Unbundled Bitstream Access prices on Chorus’ ability to deliver on its contractual commitments under the UFB and RB initiatives.

The review will assess the scope for Chorus to manage the impact within the constraints of the reduced revenue, and if required, a range of alternative options.

Following the Commerce Commission’s final ruling on copper broadband connections, Chorus warned that the decision could trigger a default in its loan obligations and cast into doubt its ability to continue to build the Ultra-Fast Broadband network.

The commission’s ruling means that Chorus would be allowed to charge a combined price of $34.44 for a copper phone line with a broadband connection, compared with the current price of $44.98.

TUANZ chief executive Paul Brislen says Chorus, and the rest of the industry, has known about cost-based pricing since Steven Joyce included it in the Telco Bill of 2010.

“Most of our energy at the time was focused on the 10-year regulatory holiday but the saving grace was the knowledge we'd be seeing retail-minus done away with and cost-plus modeling introduced,” he says.

“This was, don't forget, before Chorus was spun off from Telecom, so Chorus has known about it as long as Chorus has existed as a separate entity.

“In addition to the move to cost-plus, Chorus's launch prospectus includes a line about it under the heading 'risk'. At the UBA conference one of the Commissioners reminded Chorus of this statement.”

Commissioner Pat Duignan said: “Yes, just that the one source for the indication of the purpose of the three-year freeze is the regulatory impact statement which was released. I haven't actually got the date here, but it's the one described relating to the cabinet paper described, or with the title 'Regulatory Issues Resulting If Telecom Becomes A Partner In The Ultrafast Broadband Initiative'."

A paragraph of the ministerial Regulatory Impact Statement notes: "The following set of criteria was applied to determine which areas required specific transitional measures, or can be implemented immediately on separation date. One criterion was 'ensuring that Chorus is economically viable during the transition period and has time to adjust to cost-based UBA'...”

Brislen says "time to adjust to cost-based UBA" implies that some adverse economic effect was clearly expected as a result of this adjustment.

“The idea that it's somehow a surprise to all is nonsense – it was well flagged.

“And if the Minister didn't think it was going to be significant, why build in a three-year delay.”

Copyright © 2013 IDG Communications, Inc.

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