Government humbled as Chorus copper price dispute deepens

Political parties from across the political spectrum have joined forces to stop the government overriding a Commerce Commission ruling on copper pricing.

The government first moved to stop the Commission from cutting the price of connecting to the internet over a copper line when Chorus said it would run in to problems funding its UFB programme if the changes went ahead.

Although that price cut was originally ordered by the government, it has since back-tracked with Prime Minister John Key warning Chorus might face bankruptcy. This claim has since been contradicted by Chorus.

Wide-ranging opposition

A wide-ranging coalition of businesses, lobbyists, consumer and community groups from left, right and centre protested against the government’s intervention.

They captured the public imagination by referring to the proposed higher price as a ‘copper tax’, although in reality, the argument is not over charging more for internet access, but how much to cut from the existing price.

It also quickly became clear there is little public sympathy for the Chorus shareholders who whinged loudly about the price cut despite it being made abundantly clear this would happen when Chorus demerged from Telecom NZ.

Sniffing the wind

Non-government politicians sniffed the political wind and have now moved to block any legislation to overturn the Commerce Commission ruling.

Ministers are probably rueing the day they got involved with building a next generation fibre network. And will no doubt regret driving a ridiculously hard bargain with Chorus when the contract was awarded.

Whatever happens now, it’s clear the government and Chorus will both share some pain. If the government walks away from Chorus or decides to strictly enforce existing contracts, stressing the company’s finances or worse, it will find it difficult to form similar partnerships with private companies for future projects. It will also create problems for incoming investment.

Equity position, what equity position?

A centre right government will jump through fire to avoid taking equity or another form of ownership in the network company – although that may be the easiest way out of this impasse.

Some aspects of the debate bordered on satire. Although the Coalition for Fair Internet Pricing created the impression the thick end of a billion dollars in higher copper prices or so would come from the public’s pockets, there was evidence that little of the money would trickle down to consumers. In truth the money question is more about whether Chorus’s shareholders or the people who ultimately own Vodafone and the other telcos would benefit.

On the other hand, there’s a huge grassroots support for the Commerce Commission. Who would have thought such a dry and academically detached organisation would trigger so many passions?

Independent report

Communications minister Amy Adams has a possible get out of jail card with the government commissioned independent report on Chorus’s financial position which is due to drop shortly before Christmas.

I’m told by people close to the UFB project that Chorus is not the only fibre company running into problems and that others are watching to see what happens next.

Meanwhile the whole episode has damaged the government’s reputation as a steady pair of hands. An election is less than a year away – some insiders say sooner rather than later. If you want evidence of how large-scale telecommunications projects can cause political fallout look no further than Australia.