EY report shows no need for copper tax - Coalition

Today’s EY Australia report vindicates the Coalition for Fair Internet Pricing’s view that neither a copper tax nor a taxpayer bailout is necessary to resolve the ultra-fast broadband (UFB) issue.

“This report is good news,” a spokesman for the coalition, Paul Brislen, also chief executive of the Telecommunications Users Association of New Zealand (TUANZ), said today.

“It proves that the government’s flagship UFB initiative can be built on time and within budget with a straightforward capital raising – and without a copper tax, barmy ideas like slowing broadband speeds to dial up, or any other old-fashioned state interventions or taxpayer bailouts.

“The report indicates that a capital raising by Chorus Ltd [NZX: CNU] of around $500 million would solve all alleged problems with building the UFB after new fair prices for copper broadband and voice services come into force on 1 December 2014.

“Ms Adams is to be commended for commissioning this report and releasing it with plenty of time before the NZX and ASX open on Monday.

“It is the first solid, independent information on Chorus’s financial situation to be made available since the Commerce Commission announced last December the new fair prices it had determined under Steven Joyce’s Telecommunications Amendment Act 2011.”

Mr Brislen said the coalition would accept for the time being Chorus’s claims that the new fair copper prices would reduce its monopoly revenue by $1.07 billion through to 2020, although it remained sceptical the impact was so high.

He noted that Prime Minister John Key had previously rubbished early estimates the impact could be as high as $600 million and economists Covec had calculated the value of the copper tax to be no more than $449 million between 1 January 2015 and 31 December 2019.

EY Australia makes clear in its report it simply accepted Chorus’s claims of a $1.07 billion funding gap.

“The coalition will be studying these numbers more carefully in the days ahead, but even if the shortfall is as much as Chorus now claims, EY Australia says that much of it can be addressed through changes to dividend policies and debt headroom,” he said.

“Our initial view is that were Chorus to raise around $500 million in new equity, it could fill its alleged funding gap without recourse to the more barmy ideas to enhance revenue, such as reducing broadband speeds to that of the old dial-up services.

“Especially in the context of the booming New Zealand economy next year, raising $500 million in new equity for what is a growth stock is undoubtedly doable.”

Mr Brislen said the report not only vindicated the coalition’s arguments that a copper tax was unnecessary but also Mr Joyce’s landmark Telecommunications Amendment Act 2011, the Commerce Commission’s implementation of that Act and Ms Adams’ decision to commission EY Australia to review Chorus.

“The government has no stronger supporter of its UFB initiative than the Coalition for Fair Internet Pricing,” Mr Brislen said.

“We look forward to working with the government to play whatever constructive role we can in fast-tracking both the building and take up of the new UFB.”

Paul Brislen is CEO of the Telecommunications Users Association of NZ