Thursday, 12 September 2013

Axe the copper tax

I was at the Wellington launch of a new campaign today. It is being run by the Coalition for Fair Internet Pricing, and the catch cry is to Axe the Copper Tax.

To make a very long story short, in 2011 the government changed the Telecommunications Act to enable its ultra fast broadband (UFB) project, under which a new fibre-optic network is being laid to the doors of 75% of NZ's population. One part of this package of changes was that the wholesale price of the most widely used internet service would be priced differently in 3 years time. The service is called unbundled bitstream access (UBA) and the change was from pricing it as a discount off retail internet prices to pricing at the cost of supply. Everyone knew this would drop the price considerably.

Late last year, the Commerce Commission issued a draft determination for the new, long signalled, cost-based UBA price. The same day, Chorus went ballistic, its share price fell, and the Prime Minister described the new price as "very problematic".

Then in February, Communications Minister Amy Adams announced a review of the Act - required by the 2011 reforms but brought forward from the 2016 timing - and an extension of the UBA price freeze for another year.

Last month MBIE issued a discussion document that restricted the review scope to the pricing of copper-based services, proposed that copper prices be set the same as UFB fibre prices, and invited comment on three different ways to achieve that.

Its a shocking piece of work if you care about robust policy analysis. If you want to full story, the Covec analysis (for the Coalition) is here (pdf). The exec summary should be readily understandable.

Basically, it seems that the "problem" MBIE is addressing is that Chorus wants more money. Its not easy to figure this out from the document because (understandably) they don't come right out and say it. But that really is their objective.

The "solution" is to increase copper prices. Chorus is the owner of all the copper so it is the beneficiary of this plan. In particular, the non-Chorus firms building the network in Northland, Canterbury and around Manawatu are getting nothing.

That's why we call it a copper tax, and our conservative calculation is that it is worth $600m between now and 2020.

For other reports, see Kiwiblog and Stuff.

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