Key discounts Covec report on copper pricing as 'fundamentally flawed'

Tuesday 17th September 2013

Prime Minister John Key has dismissed as "fundamentally flawed" a report commissioned by a combined consumer and communications sector lobby seeking stop government intervention on pricing of the nation's ageing copper line telecommunications network.

The Covec report formed the basis of the Coalition For Fair Internet Pricing campaign's submission to a government review of telecommunications law.

Key said in Parliament it overstated the transfer of funds to network company Chorus in the 2014 year and was out of step with international norms by not viewing fibre as an equivalent to copper, in answer to a supplementary question during daily Question Time by Communications Minister Amy Adams.

He was answering the first question directed to him by the newly elected leader of the Labour Party, David Cunliffe, who asked if Key still believed Chorus would "go broke" if proposals to drop the price of copper services in line with Commerce Commission recommendations went ahead.

Cunliffe's choice is significant because he was Communications Minister in 2006 when he surprised Telecom by forcing operational separation between its core infrastructure and competitive telephony and broadband services in a move that saw prices to consumers drop.

Cunliffe is expected to campaign heavily on that record in the context of the current spat over how to price copper services in a way that doesn't undermine the government's desire to see consumers switch quickly to the fibre-based ultra-fast broadband network, which the government is underwriting.

"The Covec report's methodology is fundamentally flawed," Key said. "It attributes a $120 million transfer in 2014 - it's a material error as current pricing prevails until 2014."

Key defended comments that Chorus may go broke if the Commerce Commission pressed ahead with plans for a sharp cut in the regulated price on the copper lines, saying Cabinet had received advice based on commercial and in-confidence briefings between Chorus and Ministry of Business, Innovation and Employment.

In his post-Cabinet press conference yesterday, Key said he could not recall where the advice had come from.

He said today that those briefings probably would have come after he received a phone call from Chorus chair Sue Sheldon in December last year when she shared her view on the impact of the regulator's draft decision and gave the government "some understanding of the issues they would face."

Submissions on the review closed last Friday and came with a late push by the coalition led by the Telecommunications Users' Association, Internet New Zealand and Consumer New Zealand claiming Chorus would unfairly get some $588 million in regulatory relief if wholesale prices for unbundled bitstream access aren't cut as sharply as the Commerce Commission wants.

Key latched on to Chorus's submission published today, which included a report commissioned by former Telecommunications Commissioner Ross Patterson saying the current regulatory framework isn't fit for purpose and undermines the government's vision to switch people from the old copper lines and on to the under-construction fibre network.

Economic Development Minister Steven Joyce, answering questions on behalf of the finance minister, told Parliament Treasury's advice supported bringing forward a telecommunications regulation review, which was to have commenced in 2016 but is under way now. However, the Treasury neither supported nor opposed the pricing issues currently in play.

Adams sought the review after Telecommunications Commissioner Stephen Gale proposed sharp cuts to the regulated price of unbundled bitstream access, a copper-based service.

The proposed cuts to UBA pricing came after a three-year freeze and were seen as a way to offset the national averaging of the price of unbundled copper local loop access, which effectively increased prices for urban customers, accounting for about 70 percent of users as part of a proposed transition period.

BusinessDesk.co.nz

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