Reg Hammond: Look at Chorus funding, not tinker with regulations

Photo / AP

The Commerce Commission issued a draft pricing decision last December for the service provided by Chorus that lets internet service providers and telcos deliver broadband to your home over the copper phone line. The decision sent shock waves through Chorus, the network company that split from Telecom in 2011, which expected the price to be set much higher.

Chorus claims the commission's price would undermine its profits and put the introduction of superfast fibre broadband networks at risk.

The firm launched a very public appeal over the commission's head, direct to the Government.

'Help us,' was the motive behind the cry. The Government responded with an abrupt and strange, 'For sure'.

It did this by saying it would defer any new pricing by a year and also by bringing forward a fundamental review of the Telecommunications Act, an impenetrable piece of law that, among other things, is only just over a year old and has barely had time to be read - never mind implemented.

The immediate response of the sector, industry and users alike - after a pretty big gulp, because usually the Government lets markets do their thing without interference - has been to ask two questions: what is the problem you are trying to solve and will a fundamental review of the legislation solve that problem?

In the world of telecommunications, the commission issues a draft pricing decision, accepts submissions, and then accepts submissions on those submissions. They all get talked through at a conference, and then the commission makes its final call.

Since the December announcements we have seen the initial Chorus submission savaged by most of the other cross-submissions and Chorus has changed tack.

Initially Chorus claimed the commission had interpreted the act incorrectly. This was an argument easily shot down by the other submissions.

Chorus instead now claims that the commission has got its numbers wrong and its calculation of the cost of the basic broadband service is way too low.

Anticipating this change of tack, others in the industry have submitted the opposite - that the commission's draft determination is about right.

If everyone from Telecom to Vodafone, Slingshot, Tuanz and internetNZ is arguing the same way, then you can make a reasonable guess that the final price is going to be close to the original draft.

To mix metaphors, the change of tack has left Chorus up the creek without a paddle.

The proposed act review might buy Chorus some time but it won't resolve the basic funding problem and has the potential to take a wrecking ball to the regulatory environment for no good reason.

This would almost inevitably be to the detriment of competition in the sector and broadband users.

There is another way. The Government could run a targeted review and if there is a problem the debate could be focused on how to fill the funding gap.

Taking this approach helps everyone. The Government is decisive in sorting the problem out, Chorus gets some assurance that it is being taken seriously and the regulatory environment doesn't get unpicked, saving everyone huge amounts of uncertainty.

Reg Hammond is a policy consultant with lobby group internetNZ.