COALITION FOR FAIR INTERNET PRICING

MEDIA RELEASE

17 OCTOBER 2013

20% Chorus Returns “Outrageous”

The government must not allow copper network monopolist Chorus to make a 20% annual return on investment at the expense of Kiwi households and businesses, the Coalition for Fair Internet Pricing said today.

“Running roughshod over the Commerce Commission so a government-favoured monopolist can make a 20% annual return at the expense of Kiwi households and businesses would be absolutely outrageous,” a spokesperson for the coalition, Jordan Carter, also chief executive of InternetNZ, said today.

The coalition was commenting on a submission by lines company Vector on the government’s planned copper tax.

In its submission, Vector advised:

1. The Government should not intervene in the Commerce Commission’s copper access pricing determinations.

2. The Government should not join copper and fibre together as fibre was a competitive process to build a new network, while copper is a separate regulated service.

3. The Government should hold Chorus to its contractually agreed commitment to roll-out of fibre, without additional subsidy or regulatory relief.

4. Chorus must have been well aware that the Commerce Commission copper access pricing determinations could result in significant price reductions when it entered into the UFB bid process.

5. The Government has already provided Chorus with a substantial subsidy for roll-out of a UFB fibre network. Chorus and Chorus’ shareholders should bear the risks of the economics of the fibre roll-out. Consumers should not be required to protect Chorus by providing an additional copper subsidy for the UFB roll-out.

6. The proposed Government intervention would result in a substantial and continued wealth transfer from consumers to Chorus. Based on publicly available information, and the Commerce Commission’s Part 4 price determination models, we calculate this would allow Chorus to extract between 20 – 25% Return on Investment (ROI) on its copper network between 2014 and 2019.

7. No other regulated entity is permitted returns of this size. The Commerce Commission applied a WACC of 8.77% (2009) for the electricity distribution default price-quality path (DPP) and 7.44% (2012) used for gas pipeline services. The Commission also applies a WACC of 7.1 - 8% (for 2013-2017) in relation to Airports for information disclosure purposes.

The Coalition for Fair Internet Pricing was founded by Consumer NZ, InternetNZ, and the Telecommunication Users Association of New Zealand (TUANZ) and is supported by CallPlus and Slingshot, the Federation of Maori Authorities, Greypower, Hautaki Trust, KiwiBlog, KLR Holdings, National Urban Maori Authorities, New Zealand Union of Students’ Associations, Orcon, Rural Women, Te Huarahi Tika Trust and the Unite Union.

A Covec study for the coalition, which has been peer reviewed by Network Strategies and found to be conservative, concluded that the government’s proposed copper tax would cost Kiwi households and businesses between $390 million and $449 million between 1 January 2015 and 31 December 2019 over the price for copper broadband and voice services that Commerce Commission work indicates is fair. The latest demands by Chorus would take this cost to Kiwi households and businesses to $979 million.

ENDS

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