Chorus takes Commerce Commission to High Court

UFB fibreoptic cable rolled out in Napier.

Embattled-lines company Chorus is taking the Commerce Commission to the High Court over whether the regulator applied the law correctly in making cuts to wholesale broadband prices.

Chorus said this afternoon it has also formally applied for the commission to review its own decision on these prices, which it indicated it would do last month.

The announcements come as Chorus' share price sinks to a record low in trading this afternoon. Before the market closed, Chorus shares were down 6.56 per cent at $1.425 each.

In November, the commission indicated wholesale broadband prices should be cut by 23
per cent. These prices are what Chorus can charge internet retailers such as Vodafone or Orcon for broadband services over the copper-line phone network.

When the regulator made this announcement last month, Chorus said the move would hit its earnings before interest, tax, depreciation and amortisation (ebitda) by $142 million each year.

The company claimed the decision would lead to a $1 billion funding shortfall and its chief executive Mark Ratcliffe said it meant Chorus "simply will not be able to borrow the sums of money we need to make up to a $3 billion investment in the UFB [the ultra-fast broadband network]".

Chorus is one of four private partners building the Government's UFB network and because of claims the broadband price cuts could put the project at risk, Communications Minister Amy Adams previously indicated the Government could intervene and set prices itself.

This, however, is now off the table after it was revealed last week that the National Government did not have support in Parliament to introduce law that would override the commission's recommendation on the broadband price cuts.

In an announcement today, Chorus said it had filed a High Court appeal of the regulator's decision to cut prices for Chorus' copper broadband (UBA) service. UBA is one part of what Chorus charges internet retailers for broadband services.

Chorus has also applied to the commission for a final pricing principle (FPP) review of the UBA prices decision.

It earlier applied for an FPP review of UCLL pricing - which is the other component in what it charges internet retailers for broadband.

The commission's approach in working out copper charges since Chorus' split from Telecom used a benchmark of prices from countries similar to New Zealand.

The FPP process, however, is much more complex.

Rather than benchmarking, it involves a full analysis of the cost of Chorus building a replacement network from scratch, and working out prices from that.

"The decisions to apply for an FPP and file for a High Court appeal have not been taken lightly by Chorus' Board and Management... we have a duty to our shareholders to ensure we explore every option before us, including the High Court appeal," Ratcliffe said today.

"Completing the FPP processes for UCLL and UBA could well mean that we take another two years to end up rebalancing at around the same aggregate price as we have today.

"There is also precedent for the revised prices from the FPP to be backdated. We recognise that the Commerce Commission has to operate within the regulations that are set in the Telecommunications Act. The Commission's initial decision is a symptom of regulations that simply do not align with the Government's policy of a transition to fibre. We are not looking to blame the Commission, because it can only referee by the rules of the game as they are set," he said.