Chorus loses last-ditch bid to avoid paying slice of $50m telco levy

UPDATE / June 27: Chorus has lost a last-ditch bid to avoid paying a slice of the new $50 million-a-year Telecommunications Development Levy.

The network operator submitted the levy did not apply because it was a wholesaler, and because it did not de-merge from Telecom until half way through the levy period.

But the Commerce Commission's final determination of companies liable for the levy (see end of article) confirms Chorus place on the list and its $6.4 million contribution flagged earlier in the watchdog's draft determination.

ABOVE: Telecommunications Development Levy contirbutions for the 2011/2012 financial year. Click to zoom. The levy will drop to $10 million a year in 2016 as the six-year $300 million Rural Broadband Intiative (RBI) is completed. Chorus and Vodafone won a joint bid to roll out the RBI, meaning a money-go-round will see part of the new levy return to Chorus to fund its portion of the rural broadband rollout.

ComCom identifies companies liable for $50m telco levy - two points of contention

May 20: There are no surprises in the Commerce Commission's draft lift of companies identified as liable to contribute to the new $50 million Telecommunications Development Levy (TDL).

The list, released this morning, includes one company that sought to escape the levy (Chorus), and excludes another that successfully pulled free (Sky TV).

The levy is for the 2011/2012 financial year, and replaces the old Kiwishare annual levy which raised a similar amount. Money raised from the industry levy will go toward projects including the public-private $300 million, six-year Rural Broadband Initiative (RBI), the tender for which was one by a joint Vodafone-Chorus bid, plus improvements to 111 services.

Chorus had argued the levy did not apply because it was a wholesaler, and because it did not de-merge from Telecom until half way through the levy period.

Sky TV was mentioned in an initial Commerce Commission discussion document on the new levy, but was not included in any draft lists.

The Telecommunications Users' Association argued the net should be widened to include the pay TV broadcaster (whose iSky service runs over broadband) and other such "over the top" content providers such as Microsoft with Skype.

"Companies that make money via the network should be helping to fund the network," Mr Brislen said.

Telecom has also strongly pushed for over-the-top providers to be covered by regulatory updates to reflect the changing nature of the industry.

However, the Commerce Commission took a more old school, straight-down-the-line approach, determining over-the-top content providers such as Sky TV were not liable, because they did not operate a component of a public telecommunications network in NZ.

The levy is a blow to Telecom. The carrier used to be the sole recipient of the old Kiwishare fund, so its payment was purely notional. Now, most funds can be expected to go to the spun-off Chorus for the RBI, along with Vodafone. However, it is a blow long-expected by investors. The TDL process has been dragging on since July last year.

The Commerce Commission's final determination is due June 28.

But don't expect that to be the last of things.

The old Kiwishare levy faced legal challenges every year from Telecom, Vodafone and/or TelstraClear, leading to a pile up of Hight Court, Court of Appeal and Supreme Court cases (Telecom wiped its slate clean ahead of the Chorus de-merger; Vodafone did the same on the eve of buying TelstraClear; both companies had confidential settlements).

ckeall@nbr.co.nz