Govt faces questions over Chorus contact

HAMISH RUTHERFORD
Last updated 12:26 03/12/2013

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Labour is expected to grill the government on its contact with Chorus about broadband prices, after the company's shares plunged on news the Prime Minister says was no surprise.

Last week every party in Parliament apart from National made coordinated statements announcing they would not support any legislation to override a Commerce Commission determination that Chorus be made to cut the price of wholesale broadband connections by more than $10 a month.

Prime Minister John Key said the Government was neither surprised nor alarmed by the party announcements.

Once the Government made it clear that legislation to set the price of copper broadband connections was off the table, Chorus shares plunged by 14.6 per cent on Friday and another 6.6 per cent yesterday. The shares were trading at $1.48 early this afternoon.

Communications Minister Amy Adams today denied the Government should have made it clearer to the market that it knew legislating over the Commerce Commission's determination was not feasible.

"The reality is we're a minority government. I think everyone's very aware of that, and to build a parliamentary majority you have to go around and build majority support," she said.

A proposal had been put in a discussion document that Adams released last August.

But nothing had been taken to the Cabinet for a formal decision, and other political parties had not been approached on whether they would support moves, Adams said.

"We were a long way down the track from ever proposing formally that the Government's intention was to legislate."

She declined to comment on why the market appeared surprised by the moves.

"I cant speak for the market. The market, I guess, is looking at a number of factors," she said.

Labour leader David Cunliffe said the party would probe the Government on what it said to Chorus about its options.

"The Government had earlier said ... that they would look at overturning the decision of the Commerce Commission," he said.

"Now that would have had material consequences for Chorus and its shareholders. They then later said they had no intention of doing so.

"The question which arises is did they inform Chorus of that matter and did Chorus inform the exchange, because that would have been material and it would have likely been inside information."

Labour would work out the next step once it heard the reaction of the Government in Parliament, Cunliffe said.

Yesterday, Key said the option of overriding the Commerce Commission had always been off the table.

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"We never actually believed our partners would ever vote for it or politically we would be able to get that through Parliament," he said.

Key said "I suppose" the Government should have formally said that legislation was off the table, but only as a means of preventing a "political stunt" by his partners and other parties in ruling out support for legislation.

However, it would not have made "a blind bit of difference" to the market.

"People need to be able to count, and Chorus can count as well," he said.

"We're a minority government in the end. We may like the idea of something or not, none of which we ever gave them any indication we would."

He denied the sharemarket move of Chorus shares showed that the market was caught off-guard by the announcement.

"I don't think that's right actually. A lot of the reduction happened prior to that point," he said.

Chorus chief executive Mark Ratcliffe said last week that the co-ordinated party statements "have made a change" to its outlook.

"It [legislation] did appear to be an option until yesterday [Thursday]," he said.

"Obviously the position has changed a bit over the last three weeks. We had slightly different ways that people have described things over the last few weeks."

In 2006, Cunliffe, as communications minister, was referred to the Securities Commission by the NZX after he made comments in an interview with Bloomberg that appeared to suggest he had knowledge of the company's dividend policy.

Cunliffe and Telecom denied they had been in possession of any information about Telecom's plans.

Key, then National's finance spokesman, slammed Cunliffe at the time.

"Communications Minister David Cunliffe has shown his ineptitude and commercial naivety by his hamfisted comments on Telecom's dividend policy," Key said.

"Mr Cunliffe is in serious trouble over his comments. He clearly has inside information. He sets the policies, including the vital decision in 18 months' time over whether Telecom is structurally separated into lines and retail units."

The Securities Commission later said that Cunliffe had acted consistently with Cabinet guidelines.

- Fairfax Media

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