A revolt by minor political parties has dashed the Government's hopes of propping up the ultra-fast broadband rollout through higher wholesale prices.
Yesterday, in a co-ordinated move, a string of political parties - including all of National's support parties - said they would oppose any legislation which overruled the Commerce Commission's determination on copper broadband connections.
NZ First, UnitedFuture and the Maori Party made similar commitments within a 30-minute period, while ACT leader John Banks and independent MP Brendan Horan gave verbal assurances of opposition.
The Government said last night the move was not a surprise and that a number of options were on the table, but Prime Minister John Key has repeatedly said that legislating over the independent regulator is an option.
Last month the commission issued its final determination on the price Chorus can charge internet service providers (ISPs) - a fall from $44.98 a month to $34.44, which would take effect from December 2014.
Chorus, which owns the copper broadband network, described the decision as a "regulatory black hole" which put its government- subsidised plan to build a new fibre-based broadband network at risk. It claimed the move could leave a $1 billion funding shortfall by 2020.
Mr Key controversially said the decision meant Chorus "could go broke" if it was implemented, and that no options were off the table to protect UFB.
Although some ISPs had publicly promised lower retail tariffs, Mr Key said there was no proof savings would be passed on to consumers.
Even before the commission made its determination on price, Communications Minister Amy Adams had issued a discussion document which proposed having the Government set wholesale broadband prices during the UFB rollout.
This move, which would have required the legislation which has now been ruled out, would have seen a smaller fall in prices.
Ms Adams said last night that discussions the Government had held with support parties meant the announcements were not unexpected.
The first preference now was to have Chorus itself bridge the funding gap caused by the commission's decision, and it had contracted Ernst & Young in Australia to test whether the company was at risk of default, she said.
If so, the Government would look at "minor adjustments" to the UFB contract, and whether the company could raise cash from shareholders or modify its spending plans.
Only then would it look at "going further", Ms Adams said.
She denied that the contract with Chorus for the UFB rollout was flawed, saying the company was "lawyered up" during negotiations. "At the time a very well- experienced and substantial company was satisfied with the level of protection, and I think you have to rely on that."
Chorus said it was still "hopeful" that it could find a solution to the funding shortfall created by the commission's decision.
"We remain hopeful that as the major partner in New Zealand's largest public private partnership we can work with the Government to find a timely solution that provides the certainty we need to get on with delivering this once-in- many-generations infrastructure upgrade," chief executive Mark Ratcliffe said.
Shares in the company dropped 2.5 per cent to an all-time low of $1.78 last night, and have now virtually halved in value in 12 months.
Last week the company withdrew its guidance on how much it would return to shareholders by way of dividends.
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