Red Alert

Unanswered questions about Chorus

Posted by on December 9th, 2013

Update: You can put any of these questions to Amy Adams tomorrow live between 12.30 and 1.30pm on NBR’s live chat

As the Chorus debacle rolls on and the government’s role in its instability remains under scrutiny, the list of unanswered questions grows longer into how this situation has unfolded.

Questions to the Minister, to her ministry and to Chorus itself which if answered may provide illumination on how this train wreck of a situation  has come to be.

I put some of these questions to MBIE last week in the Commerce Select Committee. The answers were less than satisfactory and in some cases highly questionable. The current Minister Amy Adams, her predecessor and architect of the Chorus contract and the UFB Steven Joyce and even the Prime Minister continue to duck and dive accountability, using diversionary and reactive tactics as they try to come up with ways to keep the UFB on track and save Chorus’s bacon and their own hide.

1. Did MBIE (or it’s consultants or CFH) in 2011 calculate the likely copper price under a cost based pricing principle – if not why not?  Their own legislation created a 3 year moratorium (or regulatory holiday) on changes to copper prices.

  • What was that price or range of prices? Did they share that info with Chorus- why/why not? Did they also do calculations on the impact of averaging and the 2 year price freeze – did they share that info with Chorus – why/why not.
  • What advice went to Cabinet on this? Steven Joyce’s 23011 legislative changes to the Telco Act inserted the requirement for a move to cost-plus pricing of copper giving a three year window. What advice was provided on the impact of this change? Last Thursday MBIE officials told us in the select committee that there was some advice that copper would drop “a little bit”. How was that advice developed? And how much is “a little bit”?
  • What advice was provided to the Minister from Treasury re copper pricing/fibre. Did MBIE seek any advice from Treasury? Did the Minister? Did they offer any?

You would have thought that MBIE would have to have done the numbers on cost based copper – that  the UFB could not have been negotiated without them!  Otherwise why did the govt give a three year moratorium if it wasn’t to offset the impact of cost based copper – why wasn’t it a one year or four year moratorium – there must have been some calculations on which to base such a major decision!

2: Did any MBIE officials (including Bruce Parkes) participate in any discussions with Chorus or Mark Ratcliffe relating to the move to cost based pricing? Was the impact on Chorus discussed and what the moratorium and averaging would do in compensation?  Was there a negotiation where these things were agreed.  Was there anything in verbal discussions that could possibly have been construed by Ratcliffe  as the govt or officials saying that they would look after Chorus if the copper price ended up lower than they anticipated?

  • If Bruce Parkes participated in any of these discussions was he conflicted in the sense that he was previously a senior manager in Telecom and colleague of Ratcliffe?
  • Now that Bruce Parkes has shifted out of MBIE into DPMC, what role is he playing advising the government on these matters?

3: Re Amy Adams discussion document which is now the subject of a legal challenge by smaller Telco CallPlus  – where in that discussion document are all or any of the non legislative options that the PM says are there but nobody else can find? Isn’t it the case that the discussion document only proposes options all of which require legislation?

  • Was MBIE directed by the Minister to include only legislative options in the discussion document, if not why did they not include other options as requested by industry and users?
  • Why does the Discussion Document not follow Treasury regulatory principles?
  • Now that legislation to increase copper prices is off the table, will MBIE be recommending to the Minister that the Discussion Document be pulled? (They say no, but I want that in writing from them)
  • Does MBIE acknowledge that the section 157AA review is fundamentally flawed, and will it withdraw the discussion document and conduct a new section 157AA review once the UFB is in place;

4. Re passing on costs of cheaper copper to consumers. Has MBIE advised the Minister on price pass throughs from RSPs, especially in light of both Orcon and Call Plus saying that will pass price cuts on? Is MBIE and the Minister aware that CallPlus and Orcon have both said they will pass on the savings from a fall in copper prices to consumers. Why does she deny this?

  • Has MBIE had direct discussions with RSPs on this?

5. Re the Ernst & Young report?  Will the report released publicly contain the same information as the verbal report provided to the Minister? If not why not? How will the public be able to judge whether it is a rigorous analysis?

6. When Steven Joyce signed off the deal between Chorus and Crown Fibre Holdings for the $1 billion contract for UFB was he aware that no sub contract deals had been signed and therefore no prices agreed to between Chorus and the sub-contractors including Visionstream, Transfield and Downs to rollout UFB.

  • What material impact have those subcontract deals made to Chorus’s financial position and should Crown Fibre Holdings have ensured that information was locked in before the contract was signed?

7. What advice has MBIE provided to the Minister on how the potential renegotiation of the Chorus contract is fair to other ultra-fast broadband contractors who are fulfilling their contractual obligations without the need for corporate welfare?

  • Has MBIE provided the Minister with any advice on legal issues which may arise should the contract with Chorus be further varied to provide Chorus with a better deal than that with the three local fibre companies which are quietly getting on with the job of rolling out UFB.

These are just some of the questions which need answers. Feel free to offer more in comments

What Chorus and the Govt knew #2

Posted by on December 8th, 2013

John Key got caught out last week making misleading statements on the Chorus debacle.

A Goldman Sachs report from November 2011 reveals that at least one financial analyst predicted the wholesale price of copper would fall and provided an estimate for smaller Telcos of $8.47 per month which was significantly less than the final price of $10.92 a month announced by the Commerce Commission.

Today I am making public another analyst report by Macquarie Wealth prepared also in November 2011 which on page 7 clearly outline the risk to Chorus of an expected drop in earnings from UBA .

This is despite John Key and Amy Adams  claiming for weeks that no financial analysts had predicted the extent of the fall in the copper price. They were clearly wrong.

Last Monday Key was reported as saying “No one anticipated the magnitude of the fall.

On 6 November he told me in the House: ‘There were many, many analysts who looked at the situation as a result of the legislation that was brought in, and in fact, at the contract that Chorus signed, and not one analyst actually noted that there was a significant likelihood that there would be such a dramatic decrease in the copper price.’

On the 4 November his own Communications Minister Amy Adams said the commission’s rulings had come as a surprise to everyone involved. ‘No analysts or companies saw that coming, no one priced it in.’

The Goldman Sachs forecast implied that Goldman Sachs’ expectation was for a significant reduction in pricing – certainly lower than the Commerce Commissions determined price.

Chorus’s own first prospectus released in September 2011 (see bottom of  page 10) said there was a risk that the regulator will set prices that do not provide New Chorus with an adequate return on its assets.

For the Government to now claim ‘no-one knew it was going to be that low’ is simply wrong.

John Key’s disastrous handling of this issue has created false expectations for Chorus that he would inappropriately overrule the Commerce Commission, his public comments that there is a chance that Chorus will go broke are all responsible for the deep uncertainty around Chorus and the UFB rollout.


Raw data:

Explanation provided to me of impact of the Goldman Sachs analysis November 2011.

On page 4, they estimated it to be $8.47 for the smaller players (the last 2 figures in the LLU column). This is the price on top of the UCLL price, to make the service up to an equivalent EUBA (Enhanced unbundled bitstream) service.  The Commerce Commission ruling is $10.92.

For Chorus, the co-location charge would not apply in this form, and the DSLAM recovery would be on an assumption of 50%-80% capacity rather than 20%.

The backhaul charge of $9 covers backhaul around NZ, and the data charge of $7.80 covers international internet traffic.  Possibly a fraction of the backhaul could be attributed to EUBA to get the data to the handover point.

We think Chorus’s true cost of providing EUBA (on top of the basic UCLL cost) is about $5, so they have a 100%+ mark-up on the determined price.
In any event it would imply that Goldman Sachs’ expectation was for a significant reduction in pricing – certainly lower than the Commerce Commissions determined price.

Pretty hard for the Government to now claim “no-one knew it was going to be that low”

Another take on the Goldman Sachs report

He’s right – the estimate on page 4 does indeed put the UBA cost (broken down here into “co-location and other” and “DSLAM recovery”) at $8.47.

The  UBA is made up of the electronic components and in the Goldman Sachs report that’s broken down into “colo and other” and “DSLAM recovery” and they put it at $8.47 for an ISP that has only 20% market share. If you have more, as Chorus clearly does, then your costs will go down from there.

CallPlus for instance offers this service (UBA in effect) in the market today and told the Commission that it charges its retail ISP customers around the $8 mark for those lines.

If CallPlus can do it at that price and make money then Chorus, with its economies of scale, can do much more. I think xxxx  is being generous when he says Chorus costs are about $5/line. I suspect they’re a lot lower.

Madiba. The world thanks you

Posted by on December 6th, 2013

Cut the education red tape!

Posted by on December 4th, 2013

If a child comes to school hungry, putting them on the scales every day to see whether they’re gaining weight won’t help. The same principle applies to their learning. Constantly testing their level of reading and writing ability won’t do anything to improve it – quality teaching will. That has to be the main message we take from our staggering decline in the latest OECD educational rankings.

For the past five years (during which time the dramatic decline has taken place) the National government have been obsessed with testing, assessment, and ranking. The result has been schools and teachers that are so tied up with red tape and ‘reporting’ that they don’t actually have the time to do the main thing they are there to do – teach!

We already know who the kids are who are falling behind. Every teacher can tell us which kids in their class are struggling. What we should be doing is focusing resources and attention to actually fixing the problem. What National are focusing on now is how they can get their assessment results more consistent – what’s that cliche about repeating the same mistake over and over?

There are programmes that we know work. Last year Labour announced that we will extend Reading Recovery so that all the kids who are falling behind in their reading can catch-up. We’re also going to develop a Maths Recovery programme and improve professional development opportunities for teachers so that they can improve their own skills.

Let’s cut the red tape that is tying our schools and teachers in knots and get back to the basics – teaching and learning.

John Key’s backtrack and Steven Joyce’s chickens

Posted by on December 2nd, 2013

The government is furiously backtracking on pretty much all the positions it’s taken on the Chorus issue all year.

John Key on TVNZ Breakfast this morning said : “we were never going to use legislation because we knew right from the get go that people wouldn’t vote for that” [2 Dec 2013]

How curious!

On December 11 last year when asked in the House by me whether he would rule out legislation if the Commerce Commission came back with a final decision that his Government did not agree with, his answer was “definitely not!”

An answer both he and Amy Adams, his somewhat damaged looking Minister, has repeated on many occasions both inside and outside the House.

Certainly in February this year, changing the law to over rule the Commerce Commission’s decision on copper pricing was clearly one of the options  in her review of the Telecommunications Act.

I am not sure why you would start a review of the Telecommunications Act 2011  two years earlier than scheduled if you don’t intend to change the legislation in the first place! In fact legislative change was two out of the three (Update: all options require legislative change!) options outlined in her very own review document intended to bypass the Commerce Commission process.

Option 1: the Commerce Commission sets prices by reference to UFB contract

Option 2: the Government sets a new UBA price

Option 3: the Government sets a new UCLL price

Ultimately all three options have the same outcome; setting the copper price very close to the existing fibre price. The second two options involved direct government intervention through legislation. Claiming that they were “never going to use legislation” is a lie. What’s more likely is that they realised there was no support from their minority parties and they would have to create a Plan B. Update: John Key was spinning furiously at his post Cabinet media conference today that the government never planned to legislate and that ‘circumstances change’ . They sure do John,a bit quick for your liking no doubt!

Plan B is the Ernst & Young review of Chorus’s financial state. And no matter what its findings, questions must be asked about the Chorus management’s handling of the copper price issue. And of course the Minister’s handling of it. Amy Adams “Review” is pretty much cactus now.

And NOTE this is not the first time the government has had to reverse its position on a controversial aspect of its ultrafast broadband programme.

Remember when Steven Joyce was forced to back down on giving a 10 year regulatory holiday to the winning bidder of the ultrafast broadband programme? This was the first major back down by Steven Joyce. It looks as if his chickens may be coming home to roost.

The following is an extract from an NBR piece in May 2011

In a surprise move – seemingly instigated by the Maori Party – Communications Minister Steven Joyce has caved to critics, and pulled the 10-year “regulatory forbearance period” from the Telecommunications Amendment Bill, two days after it was reported back to parliament unchanged.

Better known as”10-year regulatory holiday”, the provision exempted Crown fibre contract winners from Commerce Commission scrutiny under the government’s $1.35 billion ultrafast broadband (UFB) project.

Critics claimed the forbearance period would lead to New Zealanders paying higher prices than other countries for broadband.

The Commerce Commission will now be able to regulate pricing below the level agreed in a 10-year Crown fibre company contract with the government. If it does, the government will wear the difference in the form of a Crown fibre company being given longer to pay-off its government co-investment) rather than private investors

One of the real stories in this whole mess is the role played by Joyce. It was his legislation and he oversaw the contract with Chorus.

TPP watch: why doesn’t NZ quantify its intellectual capital?

Posted by on November 17th, 2013

In 2012 the US produced this report :

Intellectual Property and the U.S. Economy


Patents, trademarks, and copyrights are the principal means for establishing ownership rights to inventions and ideas, and provide a legal foundation by which intangible ideas and creations generate tangible benefits to businesses and employees.

Intellectual property (IP) protection affects commerce throughout the economy by: providing incentives to invent and create; protecting innovators from unauthorized copying; facilitating vertical specialization in technology markets; creating a platform for financial investments in innovation; supporting startup liquidity and growth through mergers, acquisitions, and IPOs; making licensing-based technology business models possible; and, enabling a more efficient market for technology transfer and trading in technology and ideas.

On April 11, 2012, the U.S. Commerce Department released a comprehensive report, entitled “Intellectual Property and the U.S. Economy: Industries in Focus,” which found that intellectual property (IP)-intensive industries support at least 40 million jobs and contribute more than $5 trillion dollars to, or 34.8 percent of, U.S. gross domestic product (GDP).

Pretty compelling stuff.

To my knowledge there is nothing comparable in New Zealand.

In 2012 a report Price Waterhouse Coopers produced a report for the NZ screen industry which found that the film and television industry’s total contribution to gross domestic product (GDP) was $2.78 billion, representing 1.4% of New Zealand’s total GDP.

This report was important (though it should be noted our film industry is under threat and under resourced). But it’s not the full picture.

Our growing tech industry, the total intellectual capital of our ideas and their conversion to export potential remains unquantified. Consequently, it’s hard to argue in hard facts when it comes to points of trade off in a trade deal so important as the TPP. THis doe not make the value of our ideas any less improtant though.

So what’s the government doing about it? Well it seems; a big fat nothing!

When the mega ministry MBIE came before the Commerce Select Committee earlier this year I asked them what work was being undertaken on treating New Zealand’s intellectual property as ” a sector” and what quantification was being done. They looked at me blankly and made noises about determining New Zealand’s compliance with our obligations under various international  trade and other agreements. In other words, our Ministry of Economic Development is only concerned with whether we protect other countries IP laws rather than thinking about how we can protect our own innovation industries against the multinational corporate interests.

That didn’t seem very smart to me. What do you think?


TPP watch: We must stand strong against the US on excessive IP demands

Posted by on November 15th, 2013

Yesterday Phil Goff laid out Labour’s position on the leaked IP chapter of the Trans Pacific Partnership agreement

“The Government needs to stand up to the excessive and self-interested demands by US drug and entertainment multinationals in the TPP negotiations.

“The chapter on intellectual property shows that our negotiators are doing their best in opposing the demands of drug and entertainment moguls.

“We are supported by most other countries in doing that. The US appears isolated in its demands and will need to back down from them.

“Labour supports the protection of intellectual property and those who invest in research and development getting a fair return on that investment.  But we do not support big corporations being able to lock in excess profits at the expense of the consumer or to disadvantage small New Zealand companies. Patents and copyright should not be so excessive that they stymie innovation. They should not prevent the emergence of generic drugs to allow health care to be provided affordably to those in need.

Those are strong words and Labour means them.

The Government meanwhile is refusing to comment saying it doesn’t comment on leaks and downplaying any issues in the leaked text for New Zealand and talking about the wonderful upsides to NZ from the agreement.

This is despite the leaked text showing a huge gulf  between the United States and many of the other 12 countries including New Zealand. Among the contested issues are medicines, copyright and parallel importing.

We are heartened that the Kiwi negotiators are fighting for our interests as is evidenced by NZ’s position throughout the chapter. Our deep concerns lie in what may be traded off in the final stages of the negotiations. It is my belief that IP concessions not in NZ’s interests was always going to get traded away in the final round.

The TPP is not like other trade agreements. There are real risks for New Zealand’s ability to control our increasingly important digital economic development and protect our own intellectual capital while not ceding ground to the United States attempts to control content and information flow on the internet.

The 95-page, 30,000-word leaked IP Chapter lays out provisions to institute  a far-reaching, transnational legal and enforcement regime, modifying or replacing existing laws in TPP member states.

The Chapter’s subsections include agreements relating to patents (who may produce goods or drugs), copyright (who may transmit information), trademarks (who may describe information or goods as authentic) and industrial design.

The longest section of the Chapter – ’Enforcement’ – details new policing measures, with far-reaching implications for individual rights, civil liberties, publishers, internet service providers and internet privacy, as well as for the creative, intellectual, biological and environmental commons.

The US Model pushes for an aggressive and heavy-handed copyright regime. This has huge potential to harm the way New Zealand artists work and use the internet to connect with overseas markets. It has the potential to unfairly harm public rights and public respect for copyright, artists and their work.

The US Model includes a significant extension of Copyright Duration; internet termination as a penalty; making it illegal to bypass Technical Protection Measures (TPMs) so you can’t watch a DVD you legally purchased overseas; and restricting parallel imports so NZers would both lose access to many overseas works, and be forced to pay more for books, CDs and DVDs than the rest of the world.

New Zealand copyright protection of literary, dramatic, musical or artistic works typically lasts until the end of the year the author dies plus an additional 50 years beyond that. Under the US Model however this could be extended to life plus 70 years. Sound recordings and films currently have 50 years of copyright protection in New Zealand from their year of publication, however the US Model could more than double that – up to 120 year Trade deals always come down to compromise. We must ensure that New Zealand’s position retains the ability to maintain and reform our own patent and copyright laws in the best interests of New Zealand.

We must not agree to a deal that results in stifled innovation in our ICT and creative industries   where multi-nationals have the power to block innovation growth.

And we must protect against an adverse impact on our libraries, universities and schools having access to content they can afford and reduced access to content, particularly in the digital environment.

A government that cannot control its own economic development cannot govern.

The leak of the text allows transparency into these negotiations and a public debate to occur on the impact of the US demands. We support that debate occurring before the talks are concluded.

We call on on the National Government to continue to back New Zealand negotiators in the talks to protect our economic future through our ability to innovate and a maintain sensible and balanced copyright framework.

Here’s a couple of good (but disturbing pieces) pieces to read on the implications of the leaked text

  • Dr Malcolm Rimmer writes that the Trans-Pacific Partnership will stifle innovation and put real limitations on our ability to govern ourselves. It is a monster and is too important a deal to be done in secret (written from an Australian perspective)
  • Sarah Putt of the NZ Institute of IT Processionals (IITP) writes that the leaked text shows that NZ’s hard fought for new patent law which excludes software from being patentable could be under threat.

The Government is very unwise to be refusing to engage with stakeholders directly affected by these heavy-handed provisions which will stifle innovation in New Zealand. One has to ask why. Is it because they were always going to be traded off?

How independent will Amy Adam’s Chorus probe be?

Posted by on November 13th, 2013

Today Labour said that an international expert should be brought in to conduct the independent assessment of Chorus’ financial position, to   counter ANY hint of undue influence or cronyism.

This Government has a history of using inquiries as whitewashes to provide cover for a course of action already determined, or to hide crucial information which may not reflect well on them.

We say the inquiry into Chorus’ position must be led by a fully independent international expert based on recommendations from regulators, the OECD and even the European Union. It’s my understanding that Amy Adams is not consulting on the terms of reference for this inquiry. This does NOT bode well.

The terms of reference for this assessment must include examination of the terms under which Chorus was created in the demerger of Telecom and any undertakings, formal or informal, which were given to Chorus at that time. They should be fully transparent and the assessment must be conducted with the utmost integrity in order to gain credibility and support.

The inquiry should determine whether there is evidence that the Government, MBIE or Crown Fibre Holdings misled the Chorus negotiators or gave them some indication or guarantee that the Government would hold copper prices on the original retail minus basis.

And given Chorus knew about the copper price drop as is evidenced in their first prospectus, what estimate did they include in the contract price?What estimates did MBIE do? Did Chorus know about these estimates? Did the Commerce Commission get asked?

Demerger debt should be investigated. As should Chorus’s income and expenditure estimates at the time of demerger.

What was the estimated average connection cost that Chorus factored into its UFB tender bid? And what has been the actual connection cost to date?

What indications or guarantees were given to shareholders by Chorus?

The Government’s contractual terms with Chorus to deliver ultrafast broadband have never been made public. Given that it’s taxpayers’ money at stake, it’s time they were.

Taxpayers need to know that due diligence was undertaken by MBIE and Crown Fibre Holdings on behalf of Steven Joyce and the rest of the government before the UFB contract was awarded to Chorus. Labour raised many issues and concerns at the time. Now’s the time for some sunlight.

Amy Adams goes into spin mode

Posted by on November 13th, 2013

Yesterday, after I provided hard evidence that both Chorus and the Government were well aware that the Commerce Commission had a well-signalled process for reviewing the copper broadband price after a three moratorium, despite both protesting they didn’t know, Amy Adams’ office went into spin mode.

After NBR published a piece based on my Red Alert post exposing the government and Chorus’s misinformation, her office emailed  NBR with supposed evidence that I had argued during the passage of the 2011 Telco Bill that copper services would go up. Yes I did. But Adams got the context wrong. My comments (and those of David Cunliffe and David Parker) related to the mandatory averaging of copper prices in Steven Joyce’s Bill. Many submitters argued (as we did) against this, saying it would disadvantage urban users.

I’ve attached the link to Hansard for the whole debate. If you can be bothered go and read the debate. It is interesting and parts of it will come back to haunt Steven Joyce and his government.

I’ve attached Labour’s full minority report on the legislation (from page 20) which includes a section titled mandatory averaging on copper pricing (page 25).

Labour’s comments about the impact of the averaging component of the legislation on copper prices had nothing to do with the Commerce Commission legal process contained in the bill to review price of copper broadband after a three year moratorium.

Probably best to get the facts right before you attack me Amy.


What Chorus and the Govt knew

Posted by on November 11th, 2013

The debacle surrounding the government’s flagship ultrafast broadband programme and the roll out by Chorus rumbles on. The government’s heavy-handed response to a well-signalled decision by the Commerce Commission to review and drop the price of copper broadband has resulted in a year of uncertainty for the telco industry and turmoil for the future of the fibre scheme.

Both the government and Chorus have insisted they had no idea that the Commerce Commission would decide that copper prices should fall following a review based on international benchmarking on a cost-plus basis, despite this being what the legislation written by former Minister Steven Joyce told them to do (Section 78 page 100).

In this post I have provided two pieces of evidence that both the government and Chorus knew very well back in 2011 what would happen with copper prices, even if they didn’t know what the end price determination would be. The disingenuity of both players around this is staggering and has led to speculation that there was some kind of backroom guarantee to Chorus from the government via the Ministry that “she’ll be right”.

Clearly “she’s not right”. And the only place the finger can be pointed is back to Steven Joyce, the original architect of the legislation which demerged Telecom to create Chorus, which was then handed the UFB contract on a plate. It was Joyce’s legislation and his contract. And as should be clear below, both the government and Chorus knew what the deal was with copper pricing.

The spin

On Tuesday 5 November, the day the Commerce Commission announced its final decision on copper broadband prices, Amy Adams was reported in the New Zealand Herald as saying:

Communications Minister Amy Adams said the commission’s rulings had come as a surprise to everyone involved.

No analysts or companies saw that coming, no one priced it in. When we entered into the UFB contracts this was pored over by all the players and people with a very high level of understanding if anyone was going to foresee it, it would have come up then and it certainly didn’t and frankly no one’s on record as predicting a drop on this scale.

Certainly there was some small drop expected and everyone was very aware of that.”

On 6 November I asked John Key in parliament:

Clare Curran: Why is he, his former Minister Steven Joyce, and his current Minister for Communications and Information Technology, Amy Adams, so surprised at the Commerce Commission’s decision to drop the copper price given that Steven Joyce’s 2011 telecommunications company legislation clearly stated that there would be a 3-year moratorium before the move to a cost-plus model for wholesale copper pricing, which the Commerce Commission is now implementing, and that Chorus’ first prospectus clearly stated this as a risk, as did the regulatory impact statement for the Government’s only 2011 law?

Rt Hon JOHN KEY: Firstly, I think it is very fair to say that no one back in 2011 actually predicted that there would be such a dramatic fall in copper prices. In fact, my understanding is that the member believed that copper prices would go up, not actually go down. So that fall has certainly caught the market by surprise. There were many, many analysts who looked at the situation as a result of the legislation that was brought in, and, in fact, at the contract that Chorus signed, and not one analyst actually noted that there was a significant likelihood that there would be such a dramatic decrease in the copper price.


The reality

1. Chorus’ first prospectus released on 13 September 2011 contained several paragraphs under a section on page 204  headed Regulatory and Government risks. It said:

Future regulated copper and fibre prices

The prices New Chorus can charge for most of its copper-based network products and services will be regulated for the foreseeable future, and the prices for most of its fibre-based products and services are subject to a contractual agreement with CFH until 31 December 2019, and are likely to be regulated thereafter.

The framework for setting the prices of New Chorus’ regulated copper-based products and services is described in section 3.6.6. There is a risk that the regulator will set prices that do not provide New Chorus with an adequate return on its assets.

In addition, if the prices that the regulator sets for copper-based products and services are significantly below the prices for comparable fibre-based services, fibre uptake may be negatively affected (see section 9.2.1).

In the event of disagreements with the regulator over pricing, considerable resources and management attention may be diverted to dealing with disputes with the regulator.

2. A regulatory impact statement prepared for the 2011 Telco legislation drafted by Steven Joyce’s Ministry titled: Regulatory issues resulting if Telecom becomes a partner in the Ultrafast Broadband initiative stated the following:

48. The following set of criteria was applied to determine which areas require specific transitional measures, or can be implemented immediately on separation day:

a) allowing access seekers to recover sunk investments in UCLL;

b) ensuring Service Tel is economically viable and competitive during the transitional period;

c) ensuring that Chorus is economically viable during the transitional period and has time to adjust to cost-based USA;

d) giving the Commission time to implement the cost-based USA pricing principles; and

e) providing the industry with stability during a time of considerable structural change.

49. A constraint in terms of analysis is that the industry has not yet been consulted on some of the detail of the proposed transitional measures. MED seeks views on this matter at the Select Committee stage.

50. The three key aspects of the transitional measures are:

a) the currently determined price and non-price terms for the USA service will be frozen, and the USA competition test put into abeyance, for 3 years from separation day (although the Commission will be able to conduct clarifications under section 58 of the Act);

b) ServiceTel will be restricted from purchasing Chorus’s unbundled copper local loop network service until three years from separation day, and the requirement to average the UCLL service geographically will not take effect until 3 years from separation day; and

c) the determined price for naked UBA will be averaged on separation day.

Freezing UBA terms

51. The key transitional provision proposal is to freeze the UBA regulated service for a period of 3 years from separation day, with the intention of allowing a transition to cost-based UBA retail services where they are more economically viable. A 3 year period for the transitional provisions was chosen on a qualitative basis based on the estimated replacement period for exchange equipment (DSLAMs) deployed by access seekers. A more detailed analysis of likely depreciation values was not carried out

52. Consultation noted that “freezing UBA prices for an interim period” could be included as a transitional measure, but the length of time of the price freeze was not the subject of consultation.

Delay in averaging UCLL price

53. The delay in averaging UCLL will disadvantage ServiceTel which, for the period of 3 years, will be required to buy a stand-alone voice input service priced at the UCLL price, including the higher price in rural areas. However, MED considers that this delay is essential to protect access seekers who have invested in UCLL and their customers during the transitional period. ServiceTel will be protected itself by the averaging of naked UBA on separation day.

The following is an extract from the transcript at  a Commerce Commission conference to consult with the industry on the draft copper price in June 2013. The Commerce Commissioner is referring to the extent of the Government’s and Chorus’ fore knowledge of the price review.

COMMISSIONER DUIGNAN: Yes, just that the one source for the indication of the purpose of the three year freeze is the regulatory impact statement which was released, I haven’t actually got the date here, but it’s the one described relating to the cabinet paper described, or with the title “Regulatory Issues Resulting If Telecom Becomes A Partner In The Ultrafast Broadband Initiative”.
Para 48 of that paper says, “The following set of criterias was applied to determine which areas required specific transitional measures, or can be implemented immediately on separation date”.
Has a list: (a) is allowing access seekers to recover sunk investments in UCLL; (b) is ensuring service teller’s economically viable and competitive during the transitional period; (c) is ensuring that Chorus is economically viable during the transition period and has time to adjust to cost based UBA, and other documents are more explicit about the adjustment.
So, that’s the source, para 48 of that document.
I note the reference “time to adjust to cost-based UBA” implies that some adverse economic effect was clearly expected as a result of this adjustment.

Numerous industry participants have commented on the knowledge of both Chorus and the government that this review of the copper prices was coming and that there would be a material impact. To say otherwise is just nonsense. Fortunately, I think this message has got through. The big question now is what will the government do next and how will it dig itself out of the hole Steven Joyce, the great “Mr Fixit” has created.


National’s Asian MPs urged to have a conscience

Posted by on November 8th, 2013

My colleague Dr Rajen Prasad and I have called on Members of Parliament of Asian descent to vote with their conscience and vote against the Sky City bill.

MPs they should act in the interest of those people they represent when they cast their vote for the New Zealand International Convention Centre Bill, which will grant SkyCity casino in Auckland an extra 230 pokie machines and an extended licence until 2048.

The statistics make for grim reading. Among the Problem Gambling Foundation of New Zealand’s clients, 16.6% are Asians. These people are mainly based in Auckland, and among them, 61.7% had problems with casino gambling.

Leaders in the Asian community including John Wong of the Problem Gambling Foundation’s Asian Family Services and Donghwan Lim of the Korean Community Wellness Society have spoken out against the bill and the harm that gambling causes in Asian communities around New Zealand.

Bankruptcies, job losses, crime, suicide and devastation for families are the real outcome of more pokies.

National MPs Dr Jian Yang, Melissa Lee and Kanwalit Singh Bakshi should have the courage to exercise their conscience and not tow the National party line.

John Key’s record keeping

Posted by on November 8th, 2013

This is an example of the answers we receive by Ministers and the Prime Minister to written questions.

Is this deliberate or incompetent? Note he hasn’t said he has not discussed the matter, just that there are no records held by his office.

Question: Further to Parliamentary Written Question 10733 (2013) and subsequent correspondence, what are the dates and times of meetings, of which a record has been kept, in which the sale of Television NZ land to Sky City was discussed between 1 May 2013 and the present?

Portfolio: Prime Minister

Minister: Rt Hon John Key

Date Lodged:31/10/2013

Answer Text: There are no records held by my office of meetings, since 1 May 2013, in which the sale of TVNZ land to SkyCity was discussed.

Attachment: None

Date Received:08/11/2013

Court case another wake-up call

Posted by on November 7th, 2013

A pending Supreme Court ruling could impact on  hundreds of leaky home owners across New Zealand who have missed out on compensation due to the 10-year time limit.

Auckland couple John and Helen Osborne, who were told they were ineligible for the Weathertight Homes Resolution Service, have argued the time frame should have started from when the code compliance certificate was issued, rather than when construction ended.

Regardless of the outcome, this case is a wake-up call to Building and Construction Minister Maurice Williamson to take another look at the Code Compliance Certificate (CCC) regime that has been replaced under his Building Amendment Bill (No 3).

The Consent Completion Certificate set to replace the current CCC will create confusion and deliver uncertainties for both home owners and the construction industry.

On the one hand I’m glad that the Minister has not triggered the new regime for obvious reasons, but on the other I’ve remained concerned that the new regime had been instituted as part of the Minister’s piecemeal approach.

It appears the Minister was convinced that the licensing regime for builders, which Labour supports, was the main reason for the new CCC regime.

However I agree to the views by the submitters that the licensing regime at this stage is only ‘ticking boxes’, and not a standard that will guarantee the quality of craftsmanship and the design of new homes.

It is absolutely vital the Government gets this right ahead of the Christchurch rebuild and housing boom in Auckland and other regions.

David Cunliffe’s speech to Conference 2013

Posted by on November 4th, 2013

A better, fairer, more inclusive society that works for all New Zealanders, not just a privileged few; that’s the Labour vision. I highly recommend you watch David Cunliffe’s speech to Conference 2014 as he sets out the steps to achieving that vision.

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The right to know: Gerry Brownlee

Posted by on October 15th, 2013

This is the final instalment in the ministerial profiles as part of  The Right to Know series, in which the adequacy of Ministers responses to Official Information Act requests are put under scrutiny.

And we saved, if not the best, one of the worst, till last. Hon Gerry Brownlee, Leader of the House, Minister of Transport, Minister for Canterbury Earthquake Recovery and Minister Responsible for the Earthquake Commission responded to our request to all Ministers asking for the number of OIA requests received between 1 January 2012 and 1 January 2013 with a fairly upfront account.

The redacted spread sheet included in his response allowed my team and I to distil some interesting conclusions. But there are a few caveats. The number of requests responded to after the 20 workings day time limit does not include extended requests as noted in the log. We have treated requests equally if they were late by two days or two months for the purposes of graphing, if you want specific lengths of time please do go and look at the original document.

You’ll also note we haven’t bothered to graph the requestors here although we do give Gerry credit for including some information about these in his spread sheet. We deemed it pointless to try to analyse these due to the lack of differentiation between MPs from political parties which would have made the data highly inaccurate.

So, have a look for yourselves: Feel free to offer rankings/make comparisons in the comments now we have profiled all the Ministers.

In my assessment these results are appalling. Just 34% of the total number of OIAs received were answered within 20 days.

Subtract transfers and extensions and it is still only 54% of all OIAs answered on time!

Bear in mind Mr Brownlee did not provide us with any information in order to differentiate between full release responses, partial releases or declines.

We’ve all read about the trials and tribulations Christchurch residents have had trying to extract information from the EQC, including the proposal of a charge of $24,000 on the Wider Earthquake Communities Action Network of Canterbury (WECAN) for a response to their OIA request.

Labour MP Clayton Cosgrove intervened and we are still hopeful those community members will get access to what they seek.

But with Ministers like Gerry Brownlee (or any of the 22 others we’ve profiled) setting the example, is it reasonable for Kiwis to think our Government is transparent and accountable? And if not, what do we need to do about it?

Stay tuned folks as this series will be continuing with a look at how our Ministries and Government departments respond to OIA requests coming up next.

I hope you agree that the data contained in these posts is important to build a picture of just how responsive and accountable our government representatives are to lawful requests for information.

The chilling effect of TICs

Posted by on October 14th, 2013

Update: The second reading of TICs is tomorrow. It seems likely the Govt will try to rush through the committee stages and third reading this week.If so, this is an extraordinary abuse of process, because there is almost no time to consider the impact of the Minister’s SOP and to undertake the debate that needs to be had. One fo the worst things about this Bill is the refusal to have meaningful and respectful discussions with the businesses which will be most affected, or to acknowledge the impact on NZ consumers. Please help to fight this Bill’s passage.

Tell Amy Adams what you think by emailing her at: or You can contact her on twitter @amyadamsMP

Amy Adams tonight released last minute amendments to the Telecommunications Interception Capability and Security Bill (TICs). The fact that she has introduced an SOP at such a late stage indicates she and her government is concerned that there are serious deficiencies with the Bill as it came back from the select committee.

However, her amendments are not substantive and appear to be window dressing. They reflect the hurried passage of this Bill, the lack of consultation with industry and the likely consequences on the privacy of Kiwi citizens and detrimental impact on NZ tech companies and their ability to innovate.

That she is introducing an SOP at all indicates that the National Govt majority on the committee did not, or would not, consider the implications of the Bill to NZ-based and internally-based tech companies.

In particular;
Amy Adams has now signalled there will be a more rigorous assessment of the costs and benefits, including the impact of the cost on the telecommunications company of requirements under the new law. In the Labour minority report we said: “Labour notes that subsequent submissions to the select committee by several network operators outlined potential significant annual operating costs and the potential capital expenditure costs. The committee did not seek advice on these supplementary submissions and the economic impact was therefore not taken into account. In our view this was negligent and irresponsible.”

The Govt’s majority select ctte refused to take account of the warnings raised by network operators of the impact on their business by this Bill. While she is now obviously acknowledging that there may well be an impact Amy Adams needs to specify exactly what a “more rigorous assessment of costs and benefits” will involve and where the Bill will reflect that.

Labour stands by our conclusion in the Minority Report that:
There are many reasons to oppose this Bill. It is ill-thought out, rushed and the government has refused to take account of core concerns raised by submitters. There has been no case made for the expanded powers of the GCSB and of Ministers.

Below is Labour’s Minority Report following the report back from the select committee. Read the rest of this entry »

The right to know: Bill English

Posted by on October 14th, 2013

The profile of Hon Bill English, Deputy  Prime Minister, Minister of Finance and MP for Clutha-Southland in the Right to know series, will be short and sweet.

As you know my team and I have been researching the adequacy of Ministers responses to Official Information Act requests. In March, we sent a request to all Ministers asking for the number of OIA requests received between 1 January 2012 and 1 January 2013, the number transferred, extended, responded to within the 20 working day limit, responded to late or not responded to at all.

Bill English’s response was surely one of the least forth coming we received. Evidently in his office “OIA requests are not filed or categorised in a manner that would enable the information to be easily identified”. The lack of information means we can’t say how many requests Mr English responded to late or simply didn’t respond to.

Bill English is the Minister who has supposedly pushed a transparency and open data agenda within government. He is to be applauded for his work around the Declaration of open and transparent government, which aims to provide a mechanism to release govt data for re-use. Pity his own Ministerial office doesn’t practice what it preaches.

Bill English’s inadequate and even misleading responses to written questions put to him are also deeply concerning. But that will be the subject of another post and watch that space.

A good day for the left

Posted by on October 13th, 2013

What to make of the local government election results?  On the face of it you’d have to say that with centre left mayors in Auckland, Wellington, Christchurch and Dunedin the vibe is good for the left heading into 2014.

Dave Cull and Celia Wade-Brown fended off challengers in Dunedin and Wellington. Lianne Dalziel romped in without a serious opponent in Christchurch. Life is about to get more interesting for Gerry Brownlee who now has to contend with a more sophisticated political operator in the mayor’s chair. Lianne will be a formidable counter-balance to National’s strange mixture of top-down and hands-off approach to the rebuild.

In Auckland Len Brown has a thumping mandate. Turn out is down but as Mike Williams argues in the Herald on Sunday, that is largely because Len never had a serious challenger on the Right. Mr Palino garnered 50,000 100,000 votes, scooping up the conservative votes on the North Shore and the Eastern Suburbs who were never going to vote for Len after their rates went up under the rating unification scheme legislated by National.  But the Auckland Right never got behind him in a serious way.

They put their resources into a couple of strategic Council contests, namely Denise Krum v Richard Northey in the Maungakiekie ward, and Linda Cooper v Christine Rose in Waitakere, hoping to tip the balance of power on Council. However the National Party picking up both those seats is neatly offset by Labour’s Ross Clow winning the Whau ward from Noeline Raffils, and left leaning John Watson joining his ticket-mate Wayne Walker in Albany. The balance of power on Council is unlikely to change much at all as a result.

The big story in Auckland is Len Brown’s long term mortgage on the Town Hall. The fact that the Right couldn’t find a credible challenger says it all. Len’s been the alternative government for the last three years on litmus test issues like transport and housing. He even rolled Gerry Brownlee and Steven Joyce on the City Rail Link.  If he can get the City Rail Link tunnelling underway before the next election (possible with a Labour win in 2014) then you’ll have to crowbar him out of the Town Hall.

And more good news for the left in Auckland: Labour and progressive allies scored some notable successes in the local boards. Out west where I am, Labour tickets won a majority in the Whau,  got three elected in Henderson-Massey, and the Labour-Green-Independent Future West won a clean sweep in Waitakere Ranges.  City Vision maintained its majorities in Waitemata and Eden-Albert. Labour wrested Otara-Papatoetoe from the centre right. Kaipatiki on the Shore shifted in a more progressive direction, and the progressive Roskill Community Voice team won a majority on the Puketepapa board.

The right to know: Tony Ryall

Posted by on October 12th, 2013

As we get to the end of this part of the blog series on the right to know; it’s time to take a look at Hon Tony Ryall, Minister of Health and for State Owned Enterprises.

Tony Ryall responded to our request in a table, as opposed to the redacted spread sheet provided by many of his colleagues. This limits our ability to draw conclusions as we are reliant on the figures the Minister provides rather than raw data. In particular, he left some gaping holes in the table and left us unable to tell how many of his responses were returned late, although he does state that all requests have been responded to!

You’ll note the figures don’t add up, so we have to assume that he has included many of the transferred requests as being responded to within the 20 day time limit imposed by the Act. In the table provided, the Minister has broken the figures down by portfolio but has not entered a figure for responses sent within 20 working days for his State Owned Enterprises portfolio. Since he transferred 18 out of a total 27 responses and extended the time limit for another 7 we can tentatively deduce that he responded to two requests late, without seeking an extension and absolutely no requests were responded to within 20 working days!

Tony Ryall also fronts up to having suggested a charge for the supply of information to one requestor and has provided us with a bit of a breakdown of who those requestors were.


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The right to know: Hekia Parata

Posted by on October 12th, 2013

The next Minister to be profiled in the Right to know series is Hon Hekia Parata, Minister of Education and Pacific Island Affairs.

As did many other respondents, Hekia Parata provided us with a redacted version of the spreadsheet log kept by her office. She also emphasised in her accompanying letter that this “may not be a complete, or accurate, reflection as this would require cross referencing each entry with each individual file…”

Along with uncertainty whether the log is 100% accurate, it is also evident that she regularly responds to requests late with only just over half the total number of responses sent within the 20 day statutory period. Her full response can be found here, and is well worth a look.

You’ll find a few, but there is one particularly flagrant example of the Minister’s disregard for the Official Information Act at the bottom of page one where a request from the Research and Advice Team (of an undisclosed organisation) was due on 10 May and actually responded to on 18 June!

I will place a caveat on the 10 requests we have classified as not having been responded to. There were multiple instances of an x appearing in the “Response Date” column which we have assumed to mean that for some reason that entry was not applicable. In some instances the request had been transferred or withdrawn but in other the rationale for the x was not so obvious.

The ten classified as “Not Responded to” however had no entry whatsoever in the ‘Response Date” column but the other columns are complete and as such we think it reasonable to conclude that these requests have not yet been responded to.

On the upside, Hekia Parata did provide some info about requestors:


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