InternetNZ: The #coppertax conundrum

Last week marked two months since Communications Minister Amy Adams launched the review of the Telecommunications Act. An early-morning breakfast launch at the Beehive marked the beginning of a sense of confusion and paralysis across the telecoms and Internet sector, and has seen an ill-tempered and difficult policy debate under way ever since.

This three-part post picks out the main points of concern, as the Ministry continues to analyse submissions and as the Government indicates it won’t make any policy decisions before a Commerce Commission decision due late October.

Part One looks at the background to the debate and critiques the apparent drivers of the Government’s position

Part Two further critiques those drivers, and tries to explain from my point of view why the tone of the debate so far has been fairly grumpy.

Part Three looks at what might extract all parties from the grumpiness now prevalent, providing there’s an openness – on all sides – to changed approaches.

The #coppertax Conundrum - Part 1 | InternetNZ

What is going on?

For newcomers to this debate, here’s what you need to know:

• When Telecom agreed with the Government to be a partner in the Ultra-fast Broadband Initiative in late 2010, it agreed to separate into two companies – Telecom and Chorus.
• As part of the separation, pricing rules for a key broadband service on the copper network – UBA or unbundled bitstream access – were changed from referring to Telecom’s retail prices, to the actual cost of providing the service.
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• The Commerce Commission, which sets prices in this area, announced its first draft price for the service in December last year, at $8.93.
• Chorus said this would affect its prospects, and the Prime Minister said intervention would follow.
• Amy Adams announced the telco policy review in February, and also announced that the price freeze on UBA would be extended by a further year.
• A Commerce Commission conference on the UBA pricing review in June saw every part of the industry (except Chorus) agree the Commission’s draft price was an accurate reflection of the cost of delivering the UBA service, if not slightly on the high side.
• The Minister launched her discussion document for the first phase of the review of the Telecommunications Act in August. It proposed three options, all three seeing the Government take control of setting the UBA price away from the independent regulator, and all mandating much higher prices than that proposed by the Commerce Commission. This would lead to a major wealth transfer to Chorus for no gain to anyone else.
• The status quo wasn’t considered as a relevant option. No cost/benefit analysis was presented.
• A broad-based coalition – the Coalition for Fair Internet Pricing – launched in September (InternetNZ is a founding member), arguing two key points: that the Commerce Commission, not Cabinet, should set the UBA price; and that a multi-hundred-million-dollar transfer to Chorus was not justified by any analysis presented by anyone.
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The #coppertax Conundrum - Part 2

The previous post in this series ended with an explanation of three drivers of the Government's desire to review the telco policy framework, including the imposition of the CopperTax. Those were the economic viability of Chorus (and impact on the UFB rollout), a concern with migration to UFB from copper broadband, and a somewhat arcane debate about whether it's right in principle to price copper and fibre broadband network services the same.

As I said in the previous post:

A frankly bizarre and economically untenable argument is proposed as to why copper and broadband services should be priced similarly that rests on two legs: that a modern network is a fibre network, and that we know the cost of a fibre network because we are building one for the UFB. Taken together, these two legs are argued to mean that the prices of copper and fibre broadband inputs should be the same.

It is important to be very clear and very direct about this: neither leg of this argument stands up...

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The #CopperTax Conundrum – Part 3

What’s the solution?

One possible way through the name-calling and mutual incomprehension is visible, and it has the great merit of being pretty simple.

The easiest approach is for the Government to consider all the evidence and submissions made in response to the document, and to conclude there is insufficient evidence for a change in policy.

The Government can rightly have confidence in the status quo it implemented two years ago. Nothing to see here folks; move right along. Everyone except Chorus would welcome such an announcement – and Chorus would not welcome it because hundreds of millions of dollars it was hoping to gain would suddenly be off the table.

That solution works as long as there isn’t a deep dark secret floating around. If there is, we don’t know about it – but at some point we will.

If the Government thinks issues really remain, the best thing it could do is to explain what they are, and seek further input. A second discussion document could specify them very clearly, share analysis of the nature and scale of the problem, and set out a range of approaches that would tackle it...

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