Government plan to price copper higher than fibre is a mistake

Prime Minister John Key says his government hasn’t ruled out using legislation to bypass Commerce Commission recommendations.

The move would protect Chorus, which says it could lose up to $160 million a year from the planned regulatory change.

It would also become a form of price discrimination favouring the UFB network being built by Chorus and three other fibre companies. In effect, government intervention would make copper less attractive by making it more expensive than fibre.

While it is understandable the government would want to shore up its own fibre project, this is potentially risky for three reasons:

1. It punishes poorer New Zealanders

It will take another seven years to build the fibre network. Business districts, schools and medical centres are a priority. Next on the list are the wealthier suburbs where the government thinks people are more likely to sign-up early for fibre. The poorer suburbs are at the back of the queue.

This means poorer New Zealanders will have no choice but to use copper for years to come. Making them pay more for it is doubly cruel.

This is politically dangerous for a National government. While it isn’t quite take-from-the-poor, give-to-the-rich, National’s opponents could easily make it look that way.

2. Not everyone gets fibre any way

Assuming all goes to plan, UFB is projected to reach 75% of New Zealanders by 2019. There’s the rural broadband initiative (RBI) network for those in the back-blocks. People in small towns will be left with the fibre-to-the-node network where the last leg of distribution will be over copper. Making them pay more for their copper will add insult to injury.

Higher copper prices also mean ISPs will be less able to invest in upgraded copper technologies like VDSL to serve these customers.

3. Making copper dearer won’t change fibre demand

Copper is the gateway drug leading to fibre. People who buy faster copper services, such as VDSL, are likely to be the first to buy fibre when it becomes available. Getting people hooked on fast broadband will do more to make sure fibre succeeds than discriminating against copper.

If the government has to discriminate against copper to sell fibre, that means there’s something wrong with the fibre project that needs fixing. Fix the problem, don’t cripple the competition.

Discriminating against copper is a bad idea. If a politician's advisers convinced them it was necessary to discriminate against copper in order for the fibre project to succeed, then discriminate against copper only where the fibre alternative is already in place. In that way, the price discrimination doesn’t punish those who don’t have fibre access.