Is Chorus out of tune with the sector?

23:22, Mar 19 2013

Last December, the Commerce Commission issued a draft pricing decision for the service that lets ISPs and telcos deliver broadband to your home over the copper phone line.

The draft decision sent shock waves through Chorus, which expected the price to be set much higher. They claim the Commission's price would undermine their profits, and put the rollout of superfast fibre broadband networks at risk. They launched a very public appeal over the Commission's head, direct to the Government. "Help us!" was the motive behind the cry.

The Government responded with an abrupt and strange "For sure!" They did this by saying they'd defer any new pricing by a year, and also by bringing forward a fundamental review of the Telecommunications Act, an impenetrable piece of law that, among other things, is only just over a year old and has barely had time to be read - never mind implemented.

The immediate response of the sector, industry and users alike - after a pretty big gulp, because usually the government lets markets do their thing without interference - has been to ask two simple questions: "What is the problem you are trying to solve?" and "will a fundamental review of the legislation solve that problem?".

In the world of telecommunications, the Commission issues a draft pricing decision, accepts submissions, and then accepts submissions on those submissions (helpfully called cross-submissions!). They all get talked through at a conference, and then the Commission makes its final call.

Since the December announcements we have seen the initial Chorus submission savaged by most of the other cross-submissions - and, Chorus has changed tack.


Initially Chorus claimed the Commission had interpreted the Act incorrectly. This was an argument easily shot down by the other submissions. Chorus instead now claims that the Commission has got its numbers wrong and its calculation of the cost of the basic broadband service is way too low.

Anticipating this change of tack, others in the industry have submitted the opposite - that the Commission's draft determination is about right. If everyone from Telecom to Vodafone to Slingshot to TUANZ to InternetNZ is arguing the same way, then you can make a reasonable guess that the final price is going to be close to the original draft.

Mixing yachting and canoeing metaphors: the change of tack has left Chorus up the creek without a paddle.  Their only straw to cling to,  is the review of the Telecommunications Act. The proposed review might buy Chorus some time but as a blog post I made on the InternetNZ website points out , it won't resolve the basic funding problem and has the potential to take a wrecking ball to the regulatory environment for no good reason.

This would almost inevitably be to the detriment of competition in the sector, and so in the end to the detriment (including in the wallet) of broadband users all around New Zealand.

Fortunately, there's another way out. The Government could run a targeted review to find out whether there really is a funding problem for Chorus. If there is, the debate could be focused on how to fill the funding gap.

Taking this approach helps everyone. The Government is decisive in sorting the problem out. Chorus gets some assurance that the problems it has signalled are being taken seriously. The regulatory environment doesn't get unpicked, saving everyone huge amounts of uncertainty.

We await the outcome if not with bated breath, then with a great deal of interest.

Reg Hammond is a policy consultant with InternetNZ.