The #CopperTax conundrum – Part 3

18 Oct 2013

InternetNZ CEO Jordan Carter has been unpicking the #CopperTax debate. The first post dealt with the background to the debate and the Government’s drivers. The second post rebutted the view that fibre and copper prices should be the same, and considered why the policy debate has been so tense so far.

What’s the solution?

One possible way through the name-calling and mutual incomprehension is visible, and it has the great merit of being pretty simple. 

The easiest approach is for the Government to consider all the evidence and submissions made in response to the document, and to conclude there is insufficient evidence for a change in policy. 

The Government can rightly have confidence in the status quo it implemented two years ago. Nothing to see here folks; move right along. Everyone except Chorus would welcome such an announcement – and Chorus would not welcome it because hundreds of millions of dollars it was hoping to gain would suddenly be off the table.

That solution works as long as there isn’t a deep dark secret floating around. If there is, we don’t know about it – but at some point we will.

If the Government thinks issues really remain, the best thing it could do is to explain what they are, and seek further input. A second discussion document could specify them very clearly, share analysis of the nature and scale of the problem, and set out a range of approaches that would tackle it.

For instance, if migration from copper to fibre broadband in future is a concern (when cost-based UBA prices mean that copper is a few dollars a month cheaper than entry level fibre), then set out the reasons for the concern, quantify it a bit, and canvass options that might help:

  • A marketing campaign in conjunction with retailers to help spur UFB uptake
  • A review of what the physical and work process barriers are to faster UFB installs, and steps to resolve them
  • Assessing whether national standards under the RMA might lower the compliance costs Chorus faces for the rollout
  • Statutory licensing options so UFB installs in shared property don’t get held up by luddites
  • A discussion of shut-down options for the copper network – perhaps after a set time period or after takeup reaches a set level in a particular area
  • Improve the quality of the UFB product at each price point, so it is clearly superior to copper services – improving the likelihood of migration
  • Look at ways to adjust the relative costs of copper and fibre, in ways that do and do not advantage Chorus (the current proposals, or a levy (which could spread UFB wider), or others)
  • Scrutinise content markets and make sure that aspect of demand isn’t choked.

Note that the above are just ideas that could be explored – they are not a wishlist on my part.

If Chorus’s ongoing economic viability is the concern, because the company under-estimated the likely range of UBA prices when it signed up for UFB, then conduct a rigorous review of Chorus’ financial situation. Put their numbers under the microscope. Consider the cost drivers and areas of saving. Think of ways to reduce the cost that government can change but Chorus cannot. If after all that a funding gap was proved, canvass ways to cover it:

  • Defer the repayment of the interest free government loan to Chorus, to help their cashflow
  • Renegotiate the UFB contract for a higher government contribution, or slower rollout, or smaller UFB footprint
  • Extend the telecommunications development levy once it has paid for the Rural Broadband Initiative by a time
  • Adjustments (upwards) to copper and/or fibre broadband pricing (the current proposal)
  • Taking this approach would take all the heat out of the issue, because it fundamentally changes the two things people are up in arms about:
  • The problem would be clearly specified, so people could focus on lateral solutions
  • A wide array of options would be on the table, with the worst features of the current options not required

(As a reminder, the worst features of the current options are that they end independent regulation of copper broadband costs, transferring price-setting to the government under complex and interventionist legislation; and that they all transfer hundreds of millions of dollars from your pocket and mine to Chorus without any evidence that this is necessary).

The ball is in the Government’s court

Both the suggestions above – no change, or a second round of discussion with clearer specification of the problem – are very reasonable. It’s difficult to see the downsides for anybody in having a reasonable debate, based on sharp analysis, and leading to a clear understanding of how to go about fixing any problem that is substantiated.

If the Government doesn’t take up either of the options above, then the industry will be left wondering just whose interests are being served here. It doesn’t make any sense, to me or to most anyone else, for legislation to be entertained that just makes one company better off, but achieves nothing for anyone else. 

Nobody wants a fight about this, and nobody wants to continue the current grumpy debate. But the only party with the ability to change gears and get things moving constructively is the Government. The ball is firmly in their court.

Comments

Suggestion

The argument that a higher copper access price will make fibre a more attractive proposition and therefore give the UFB and Chorus a better chance of success doesn't apply to people in areas not connected to the fibre network. No amount of positive or negative incentive works if the fibre network doesn't reach your door.

So, without conceding the need for a higher price, can we at least get the idea on to the table that people outside the fibre areas have to pay more for copper?

Ideally this applies to fibre areas not yet connected and those small towns not in the 75% urban coverage.