the real problem shown up by that determination is that we consumers have for some time, been paying over the odds for our broadband services
What a fiasco the issue of copper-based broadband pricing has become.

For two years, Chorus and the government have known that the regulated price that Chorus can charge for wholesale copper-based broadband would be reviewed and most likely fall.  When the inevitable happened, Chorus’ cried poor, threatening delays and cost increases to the government’s flagship Ultra Fast Broadband project.

Within hours of the Commerce Commission’s December announcement of its draft pricing determination, Prime Minister John Key called it “problematic” and hinted at the probability of his government’s direct intervention to maintain a higher wholesale price.

The fact of a price review was known about and acknowledged by Chorus, so it appears that the only thing problematic about the draft price, was the amount of the price reduction (23%) being more than they had anticipated.

To me, the real problem shown up by that determination is that we consumers have for some time, been paying over the odds for our broadband services.

The furore begs a couple of questions.  First, how much of a price fall did the government and Chorus expect?  Second, what understandings did Mr Joyce and Chorus have between them, for their analysts to stop short in their risk assessment of the copper price review?

uncertaintyThe government’s intention to over rule the Commerce Commission’s initial price determination and hold prices artificially high were reinforced in February.  Amy Adams announced that a planned review of the Telecommunications Act would be brought forward by two years.

After studying the issues, the Minister issued a ‘discussion’ paper in August and invited comment on her 3-way slicing of a single pre-determined outcome for a higher price.  The wider industry shouted “no way” and so began the fight for fair broadband pricing.

The industry turned on the government and launched the “axe the copper tax” campaign.

The ferocity of that campaign seems to have been effective.  Last month, the government retreated from a legislative preference, saying that Chorus’ claims needed to be looked at carefully.  Their kick for the safety of touch was vindicated when all the other political parties this week decided against supporting that legislative means.

The government-commissioned independent review of the financial implications on Chorus’ ability to continue with its UFB rollout is due today.

Already, and perhaps in anticipation of this review, the government are dropping hints of a renegotiation of the price paid for Chorus‘ contracts in the UFB project.  If that eventuates, then the entire UFB contract negotiations will come in to disrepute.  The electricity lines companies that were excluded from the contract negotiations would be well justified in making a fuss.

In the meantime, Chorus have commenced two challenges to the Commerce Commission’s pricing determination.

First is to exercise their right under the Telecommunications Act for a review of the pricing determination to the Final Pricing Principle.

It is expected that this complex procedure will take two years to complete and in the meantime, the price already published will apply from this time next year.

Second is the filing of a judicial review of the Commerce Commission’s pricing determination in the High Court.

Interestingly, Chorus are citing the same argument as John Key did back in September when he said the methodology behind the Commerce Commission ruling was incorrect, because it had incorrectly interpreted the law.  But it is not clear what that incorrect methodology is.  The Commerce Commission seem to be quite clear that they have done everything correctly.

The irony of the government’s actions throughout this fiasco is that the very outcome the Minister used to justify her intervention – to avoid pricing uncertainty – is what she has now ended up with.