4 Dec 2012

PM not ruling out legislation over broadband

3:10 pm on 4 December 2012

Prime Minister John Key has indicated the Government would change the law rather than see its ultra-fast broadband network compromised by a Commerce Commission decision.

The regulator is proposing a 38% cut to the price retail providers have to pay to use network operator Chorus's electronics to provide broadband.

Chorus says this could slash up to $160 million from its gross earning from 2014.

Prime Minister John Key says the decision could also prove problematic for the ultra-fast broadband network because consumers could be discouraged from switching from copper to fibre.

Mr Key is not ruling out a law change to cut across the final commission decision if it's seen as unfavourable.

Telecommunications Users Association chief executive Paul Brislen told Radio New Zealand's Morning Report programme that this the first decision the Telecommunications Commissioner has made on the issue and it is important the regulator's role is not undermined.

Communications and Information Technology Minister Amy Adams said pricing should provide companies with an incentive to invest and maintain new technology and to move consumers over to it.

She said Mr Key's comments would not undermine the Telecommunications Commissioner.

'Uncertainty' for company

A director at sharebroker Hamilton Hindin Greene's, Grant Williamson, says the commission's draft determination will create uncertainty for the company, and if the proposal goes through it will reduce both earnings for Chorus and dividends for its shareholders.

He says reducing copper line charges would halt migration from copper to the new broadband - something the Government would not want to see.

Chorus says it may have to rethink its business model, capital structure and approach to dividends.

IDC research manager Peter Wise says the network operator is in a difficult position as it has to fund much of the fibre rollout from existing regulated revenues which are copper based.

He says consumers should be enticed to move to the fibre network, not be forced to because of the cost of copper-wire services.

The commission says it has calculated the costs by benchmarking against other countries as required by legislation.

It says it is just a proposal at this stage, and it plans to release in June the final benchmark price for the charge retail providers have to pay if they use Chorus' electronics to provide broadband.

Chorus' shares plunged 14% on Monday to close 49 cents down at $2.91.