Damien Grant: Crown trips in tangled copper web

Fibre broadband is a great product and there is demand for it. Given time, private firms will provide it and customers will migrate to it. Photo / Thinkstock

The scandal over Chorus is not the price of copper broadband. It is how the Government and public are being manipulated by vested interests.

John Key, reviving Muldoon's legacy, committed to building a fibre network. Crown Fibre Holdings was given $1.5 billion and began negotiating with private firms. Its most important partner is Chorus, which had been the network arm of Telecom until the two split so that Chorus could participate in the fibre rollout.

Crown Fibre Holdings pays the cost of running fibre down the street and Chorus wears the cost to the property.

Crown gets a debt and equity position in Chorus. But the programme has curdled. Consumers prefer the cheap, reliable copper networks that handle email, Facebook and pirated movies perfectly well.

Telecommunication networks are regulated and regulation is invariably flawed.

To prove this point, the Commerce Commission proposed gutting the price which Chorus charges for its copper broadband by $12.53 a month. It has a million lines so this shaves $150 million in revenue from a business that made $171m after tax last year. Not only does this push Chorus to the margins of solvency, it reduces consumers' interest in the subsidised yet still expensive fibre alternative. Oops.

Treasury is nervous at seeing a key infrastructure provider savagely undermined. It is also unhappy at the price signals being sent and intends to over-rule the Commerce Commission. In reaction, a coalition of interested parties that include the Telecommunication Users Association, CallPlus and others has emerged. They employed Covec, an Auckland-based economic consultancy, and Exceltium, Matthew Hooton's PR firm that the Coalition gushes "is known to have the ear of key members of the National Party".

Covec takes the absurdly low Commerce Commission number and compares it to the proposed Treasury figure; multiplies this by the number of copper broadband connections and models the result out seven years. The resulting figure of $588 million is labelled by Covec as a "transfer to Chorus" and rounded up to $600 million by the Coalition and promptly labelled a copper tax.

We are being conned. There is no "copper tax" and the charade demonstrates why the Government should not be in the business of building or regulating infrastructure. The incentives have become twisted and decisions that should be taken by the market are politicised.

Fibre broadband is a great product and there is demand for it. Given time, private firms will provide it and customers will migrate to it. Instead we have another Think Big project spilling red ink and a panicked Government under political pressure micro-managing the price private firms charge for their services.

Muldoon discovered that attempting to interfere with the natural working of the market leads to ever-growing and onerous regulation.

The invisible hand should not be tethered.