16 NOVEMBER 2013

Copper Tax Work Should Be Suspended While Review Underway

All work on the government’s proposed copper tax should be suspended while Ernst & Young Australia carries out Communications and IT Minister Amy Adams’ independent review of Chorus Ltd’s current financial position and future options, the Coalition for Fair Internet Pricing said today.

“Both the idea of the independent review and the terms of reference the minister released yesterday suggest the government is starting to get the issues of the ultra-fast broadband (UFB) rollout and fair pricing for the existing copper network back on track,” a spokeswoman for the coalition, Sue Chetwin, also chief executive of Consumer NZ said today.

Ms Chetwin said the coalition was giving a thumbs up both to the decision to go offshore for an independent reviewer, which will minimise the risk of commercial or bureaucratic interference, and to the formal terms of reference released yesterday.

“As long as these terms of reference are followed fully and faithfully, Chorus is forced to co-operate completely and there are no additional informal directions given to the review team by officials, the minister’s review should provide useful information to the government, the telecommunications industry and consumers,” she said.

“In particular, we are pleased that the terms of reference split out the impact of the new fair prices for copper broadband and voice services from Chorus’ own strategic choices.

“For example, to our knowledge the UFB contract does not provide for pricing of the copper network to cross-subsidise the UFB roll out. If Chorus was relying on such cross-subsidisation when it signed the UFB contract – ignoring its own warnings in its first prospectus that copper prices could fall substantially – that was its own choice, and its shareholders, board and management must live with it.

“Similarly, if its board’s decision to pay a $95 million dividend this year has weakened its balance sheet thereby raising its debt servicing costs, that too is an issue for its shareholders.

“We will adamantly oppose any in-house commercial decisions such as these being used to argue for Kiwi households and businesses to pay hundreds of millions of dollars more for existing broadband and voice services than what the Commerce Commission has independently determined is fair.”

Ms Chetwin said the coalition also supported the minister’s decision to ask the review team to identify how Chorus could increase its financial flexibility to meet its UFB contract without making unfair demands of consumers.

“Cutting costs, raising new equity or debt, or reducing or eliminating dividends over the next few years are all far better options than imposing higher costs on Kiwi household and businesses,” she said.

“If the review were ultimately to find that even under such measures Chorus could be at risk of being unable to complete the UFB, then any actions taken by the government need to require Chorus shareholders to foot the bill, or be designed to lower the cost of the rollout. Under no circumstance is a copper tax fair, workable, necessary or acceptable.”

Ms Chetwin said the minister should now order her officials to stop work on the proposed copper tax and the so-called review of the Telecommunications Act while the independent review of Chorus was underway.

“The copper tax is deeply unfair and unpopular, the legality of the review of the Act is being challenged in the courts and it is clear that the mistakes the government has made in its handling of these issues have been motivated by its concerns over Chorus’s finances. The independent review of Chorus should make the copper tax and the allegedly unlawful review of the Act irrelevant,” she said.

”Work on both should be suspended until the Ernst & Young Australia report has been released and fully analysed by officials, ministers, the industry and the public. We look forward to seeing the final report before Christmas, along with any drafts, including full details of any additional briefings from officials and the broad views of those consulted.

"Such transparency is necessary to ensure the integrity and independence of the review is beyond reproach, which is absolutely essential given the government’s potential conflict as both policymaker for the industry and investor in UFB.”

ENDS

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