…said Mr Joyce, adding that “the government wears the risk not consumers.”   In reversing that commitment, Amy Adams’ needs to tell us what is really going on here. Her justifications for intervening appear specious at best, if not misleading.
My ewe, mentioned last week with the prolapse problem, has been culled.   She prolapsed repeatedly and her lamb could not be birthed.  For me, this is a significant economic loss but my intervention to save her and her lamb failed and the only humane thing to do was to cull her.

If I had not intervened, then nature would have achieved the same outcome.

Which is quite different from Amy Adams’ special problem also mentioned last week.  She did not have to intervene on behalf of Chorus.  All she has to do is to let the market run its course.

Chorus’ issue is that the Commerce Commission has signaled a fall in the regulated price that the monopoly can charge for its Unbundled Bitstream Access (UBA) product.

Chorus sells its UBA product to internet service providers which supply retail broadband services over copper cables.  This is the service that most of us will use for the many years before Ultra Fast Broadband (UFB) services are more widely available.

Amy Adams would have those of us without access to the superior performance of fibre, pay fibre prices to support Chorus’ bottom line profits.

Chorus themselves estimate that the lower UBA price will reduce annual earnings by between $20 million and $100 million.

Chorus’ CEO Mark Ratcliffe led Telecom’s UFB bid team and he must have been well aware of the financial impact that a changed regulatory regime would have on Chorus’ earnings.  If there is an unexpected hit on profits, then to him is where the responsibility must go.

That regulatory regime change was demanded by the separation of Telecom and Chorus in 2011.  Had Amy Adams’ predecessor not changed the pricing principle within the Telecommunications Act, then Chorus’ earnings would have nonsensically been dependent on other companies’ retail pricing structures.

So the Commerce Commission wants Chorus’ pricing to be related to international benchmarks.  Which is what the law requires.

Chorus-Amy-Adams-29-Aug-201But Amy Adams wants Chorus’ pricing to be similar to the UFB’s pricing which is set by contract for five years.

The effect of Amy Adams’ interference is to restore the regulatory holiday that Telecom sought when negotiating the UFB contract with then Communications and Information Technology Minister Steven Joyce.

A regulatory holiday would have prevented the Commerce Commission exercising oversight of Chorus as it rolled out the UFB network.

Back in March 2010, Telecom CEO Dr Paul Reynolds held out for a 10-year regulatory forbearance period to give “…certainty to investors.”  That is, to hold up profits to pay out to shareholders of the company.

Mr Joyce defended the regulatory holiday, saying it was a “…pragmatic move to attract private investment.”

Following vehement protests, the regulatory forbearance provisions in the Telecommunications Act were withdrawn in May 2011.

Mr Joyce had found an alternative contractual solution that gave Chorus the pricing confidence it wanted. Remedies in that solution “…remain within the current government funding of $1.35 Billion,” said Mr Joyce, adding that “the government wears the risk not consumers.”

In reversing that commitment, Amy Adams’ needs to tell us what is really going on here.  Her justifications for intervening appear specious at best, if not misleading.

Whatever the outcome of this stoush,  Chorus, unlike my ewe, will survive.

It’s investors may take a bit of a hit in the short term.  Better that than consumers taking a bit of a hit for many years yet.  Better that than the integrity of our telecommunications regulator being undermined.

Submissions on Amy Adams’ proposed direction to the Commerce Commission close on Friday September 13th 2013.