The only way to have confidence in the government’s next action on the Commerce Commission’s Determination, is to make the details of the original UFB negotiations public.
Of the three major issues presently bugging our telecommunications industry, two have reached resolutions that offer good news for rural people and businesses.

First is the auction of the 700MHz spectrum that becomes available for re-purposing when our analogue TV network closes down at the beginning of December 2013.

In the end, the auction of the ‘Digital Dividend’ spectrum did not produce a dividend.

The auction receipts of $176 million, exactly matching the cost of clearing the 700 MHz band.

Nine lots of spectrum were on the market at a reserve price of $22 million each.  Of the eight lots sold, all at the reserve price, the maximum of three went to each of Telecom and Vodafone.  But 2Degrees bid for only two blocks, leaving one block unallocated.

There are three upsides to the auction outcome.

First is that the mobile telcos behaved rationally – demand did not exceed supply, so they bid at the reserve price only.  That’ll help to keep prices for mobile and for fixed rural broadband services down.

Second is that there is now no extra $30 million in cash to pay as a sop to Maori for their cultural interest in the radio spectrum.  That’ll help non-Maori rural communities from falling further behind in the digital divide.

Third is the opportunity that the unallocated spectrum represents for rural people and businesses.

That opportunity is to make the unallocated spectrum available to wireless network operators for rural fixed broadband services.

A precedent for such an approach was established in 2008 when New Zealand’s ‘Managed Spectrum Parks” (MSP) service was established.

David Cunliffe, the Communications and Information Technology Minister of the time said “…the MSP is a new concept … for local and regional broadband services… encourages a flexible, cooperative, low cost and self-managed approach to the allocation and use of radio spectrum.”  Nothing has changed in the intervening five years.

Such an approach satisfies concepts around wireless spectrum being a part of the Wireless Commons with benefits available to all.  Whilst the MSP concept has not been the success envisaged, the issues experienced are readily solvable and those past experiences ought not dissuade this government from using the existing spectrum management systems to make it work for the 700MHz band.

This use of the unallocated 700MHz spectrum is a win win win for competition in the rural sector, for rural people and businesses, and for common sense.

Chorus-target-0400Resolution of the second of the major issues was announced this morning.

The Commerce Commission resisted pressure from the government to maintain high prices, and instead determined a lower wholesale price for copper-based broadband.

The Commission’s final price determination sets a wholesale copper-based broadband price of $34.44, up from their initial $32.45 but still a 23% saving on the current price ($44.98).  Amy Adams wanted the copper price to be similar to the entry-level fibre price of $37.50.

This outcome is a win for those rural people and businesses who will never have access to fibre-based broadband but, according to Amy Adams, must be required to pay fibre prices for a lesser standard of service.

In reaction, Chorus have noted that the regulated price implies a funding shortfall of around $1 billion through to 2020 and that the government should therefore intervene.  They argue that to not do so, puts the UFB project in jeopardy.  Amongst a catalogue of negative consequences on the pricing decision, they vow to “…discuss with the Crown whether Chorus is still a credible UFB partner”.

To me, that is tantamount to their signalling the government for direct financial support.

Ms Adams says only that “…the Government will consider its options in detail before making any further decisions.”    If price certainty is the goal, then the government will now need to consider direct financial support for Chorus.  Otherwise a lengthy pricing review process will be unavoidable when Chorus appeals the Commerce Commission’s Initial Pricing Principle.

John Key is today telegraphing his acceptance of the idea of the government bailing Chorus out of its dilemma.  Such acceptance is very premature.

If Chorus is in a dilemma, and that is not yet at all clear, then another solution is to migrate households and businesses to the new fibre network as soon as it passes the gate.  That would give revenues that justify their investment, and give a cost saving to Chorus by avoiding having to send technicians back to an area multiple times as households separately decide to upgrade.  It would save households money – the subsidy to connect to the UFB network is time bound and anyone migrating late will face significant costs.  It would save the taxpayer money – their investment in the UFB build out would be returned earlier than originally planned.

But all that is contingent on Chorus actually having a cash flow dilemma.  Whilst it now appears clear that the size of the Commerce Commission’s price cut is more than expected by Chorus, it does not necessarily follow that the public, as a taxpayer or consumer of broadband services, should pay for Chorus’ lack of foresight.

Does this decision really put Chorus’ financial viability in jeopardy or does it just significantly affect their short term cash flows?  The only way to have confidence in the government’s next action on the Commerce Commission’s Determination, is to make the details of the original UFB negotiations public.

Decisions on the third of the major issues, the review of the TSO (Telecommunications Service Obligation), is expected by the year’s end.  Let’s hope for three out of three for rural.