Herald on Sunday editorial: Economy better for this revolt

Chorus have been subsidising the fibre roll-out from charges for existing copper wire services. Photo / APN

Suppose the Government was building a six-lane motorway throughout the country, alongside the existing State Highway 1. That is more or less what it is doing with the roll-out of fibre for ultra-fast broadband. Now, suppose it was possible to charge us for access to the motorway or SH1. So long as the charges reflected the true costs of each network our choice would say which one was economic.

That is why the broadband pricing issue is important, and why the other parties at Parliament have done well to prevent the Government legislating against the Commerce Commission's ruling that will reduce the wholesale price of connections to the existing network.

The Government's support partners, Act, United Future and the Maori Party, have come to the same conclusion as Labour, the Greens and New Zealand First. All are happy to say that they support the commission's price because it should make internet services cheaper for New Zealanders when the ruling takes effect a year from now.

But they have not said how they would finance the fibre roll-out if, as the contractor Chorus maintains, the price set by the commission will not help pay for the new network. No party, including the Government, accepts Chorus' claim at face value. Communications Minister Amy Adams is having Chorus' case independently audited. But if it proves true the issue becomes, how should the cost of ultra-fast broadband be subsidised?

Clearly Chorus has been subsidising the roll-out from charges for existing copper wire services that the commission has found to be 23 per cent higher than they should be. That sort of subsidy is economic folly. It makes no sense to impose a cost on the economy that is higher then necessary for infrastructure as vital to a modern economy as internet cable.

If the demand for ultra-fast broadband proves insufficient to pay for its installation, the country will have needlessly spent several billion dollars. That is a significant waste of the nation's resources.

But it would be better to waste that money than impose an unnecessary cost on all economic activities using the internet in New Zealand. Economists would say it is preferable that the Government subsidise the roll-out "transparently" if necessary, than let Chorus continue to hide the cost in its charge for copper broadband.

Amy Adams says the Government has several other options now that it lacks the numbers to legislate a higher price for copper, never its preferred solution, she says. It could renegotiate Chorus' contract for the roll-out, change the basis of taxpayer funding or even "step in" to take over some of Chorus' operation. Any of those would be preferable to a hidden subsidy at a cost to all copper users.

Nobody seems to doubt that ultra-fast broadband will be worth its cost, especially the internet user groups who lobbied the political parties most strenuously to ensure the copper price comes down. The groups say the speed and capacity of fibre will be so attractive to households with multiple digital devices that they will readily pay more for it.

The Government, like Chorus, seems not quite so confident, fearing a price difference will discourage connections to the faster network. That is the risk the Government has taken. It is too late now for second thoughts. The project is now well under way.

Digital technology is developing at a pace that makes it hard to predict our needs. But we should never pay more for service than we need to. Labour and the small parties, take a bow.