In a surprise move, minister caves to critics. Signs are the Maori Party has excercised its leverage. Labour sees taxpayers essentially subsidising a Crown fibre contract winner, such as Telecom, under the compromise provision.
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 the "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.
Maori muscle
Notably, Mr Joyce thanked the Maori Party for its assistance with the change (see full statement below).
With Act having turned on the telco bill, National needs Maori Party support to get the legislation passed.
A source inside the finance and expenditure committee last night told NBR that Mr Joyce had been "worried about the numbers".
The Maori Party needed to stay on board to drive the new law through. But a new agency created to promote Maori broadband interests, Nga Pu Waea, looked like too much of a sop (see NBR's story from yesterday: As Act peels away, Crown fibre bill hinges on Maori Party support).
Tuanz: impressed
The Telecommunications Users Association, which lead a campaign opposing the regulatory holiday (joined by Federated Farmers, Consumer, Vodafone, 2degrees, TelstraClear and others) - welcomed the development.
"This is fantastic news and clears the way for the development of a world-class ultrafast broadband network that will give New Zealand the opportunity to take on the world in the new digital era," chief executive Paul Brislen said this morning.
InternetNZ also welcomed the new provision. Chief executive Vikram Kumar wanted more detail, but from what he had seen so far, the InternetNZ boss said the substitute mechanism looked like "a win all round".
The government had moved from a secretive regime to a more conventional public-private partnership approach.
“The regulatory holiday was a non-transparent regulatory subsidy which hid any future costs from public scrutiny.
Mr Kumar did flag one concern, however: with the government taking on more risk, and potentially cost, non-priority regions could suffer toward the end of the 10-year UFB rollout.
TelstraClear, which ran high-rotate (if vague) TV ads attacking the "Ultra Fast Broaband bill", issued a brief statement this morning saying "consumers will be far better off, and there will be a greater chance for the UFB initiative to be a success."
Labour: unmoved; says taxpayers will pick up the difference
Labour had promised to repeal the regulatory holiday provision if made government.
This morning, communications spokeswoman Clare Curran said the change was not enough to earn her party's support for the bill.
Ms Curran described it as a "massive, embarrassing backdown" by Mr Joyce, "forced on him by the Maori Party".
The substitute mechanism was a "last minute, stiched-together compromise" that left the taxpayer facing an open-ended bill with its promise for the Crown, rather than a private contractor, to pick up the difference fi the Commerce Commission regulated prices lower than those agreed in a Crown fibre 10-year contract.
A Crown fibre winner - which could be Telecom, in many regions - would be insulated from the true market rates, Ms Curran said. Taxpayers would have to make up the shortfall.
The Green Party welcomed the change, but said it would need to study it further before deciding whether to support the bill.
Act has yet to weigh in but, in adding a new regulatory layer, Mr Joyce has presumably moved the bill even further from the party's support.
Changing tack
Previously, Mr Joyce has been staunch in his defence of the regulatory holiday, saying it was a pragmatic move to attract private investment.
The minister also argued it would hold down prices because public-private regional Crown fibre companies would not have to "price in" the risk of Commerce Commission interference.
Mr Joyce also pointed out that Crown fibre company wholesale pricing would be set by contract with the government for 10 years (it could go down, but not up). Opponents, including InternetNZ chief executive Vikram Kumar, worried that broadband pricing would not fall as fast in New Zealand as other countries.
Today, Mr Joyce maintained that concerns were "more theoretical than real" but said he had listened to the industry.
RAW DATA: The minister's statement:
Regulatory forbearance to be replaced
Regulatory forbearance on wholesale prices for the ultra-fast broadband network will be replaced with contractual mechanisms that would apply if the Commerce Commission regulates prices lower than those contracted, Communications and Information Technology Minister Steven Joyce announced today.
In announcing the move, Mr Joyce says that he had listened carefully to industry concerns in regards to the plan for regulatory forbearance over the 8 ½ year build period of the contract.
“While I think their concerns are more theoretical than real, given that pretty much everybody has been happy with the very competitive prices announced by CFH to date, we have been able to find an alternative solution which will give the infrastructure builders confidence to stay committed to their low capped prices, and customers confidence that they are will continue to get the best prices over that 8½ year period.”
Mr Joyce said investors contractual mechanisms would be triggered if significant changes are made to price or other key features of the UFB regime over the build period.
“Any such remedies would remain within the current government funding of $1.35 Billion. They could be in the form of additional deferred repayment to the government of the funding. These remedies are similar to those provided in other public-private partnerships.
“In making this change the government is backing the prices negotiated by CFH, however, if the Commerce Commission believes prices should go lower at some point over the build period, government wears the risk not consumers.
The contractual mechanisms would not apply where there was behaviour by Local Fibre Companies which resulted in regulatory change.
The Government will also include an “avoidance of doubt” clause in the purpose statement of the Telecommunications Act 2001, and write a Government Policy Statement, which together will make it more explicit that the Commerce Commission and the Minister must consider investment and innovation in new markets when considering price regulation.
Mr Joyce says amendments to remove regulatory forbearance from the Telecommunications Amendment Bill and make the related changes will be introduced at the final legislative stages of the bill.
While the Commerce Commission’s normal role under the proposed Act will now apply, the restriction on unbundling of the UFB network to residential customers will remain until 1 January 2020, after which unbundling can occur.
The Minister thanked the Maori Party for their representations and assistance in developing the change.
"The Maori Party has taken a consistently positive view of the importance of Ultra-fast Broadband and the Rural Broadband initiative in lifting economic development for Maori and all New Zealanders. They are taking a constructive approach to what will be a transforming investment for New Zealand.
“I also welcome the Finance and Expenditure Committee’s amendment to bring the general review of the telecommunications regime forward to 2016 to provide earlier certainty about the form of regulatory regime that may replace the current one.
“This package of measures together will provide additional certainty for bidders but also retain additional aspects of the current telecommunications regime that some stakeholders have been concerned about changing,” says Mr Joyce.
Telecom: "comfortable"
Telecom chief executive Paul Reynolds said his company was "comfortable in principle with the proposed changes. They appear to adopt a standard contractual approach to Public Private Partnership (PPP) arrangements.
Dr Reynolds added, “They should therefore provide investors with the necessary degree of certainty while also ensuring the industry is comfortable with the level of regulatory oversight.”
As well as regulatory changes included in the Telecommunications Amendment Bill, Telecom needs shareholder and debt-holder approval before it can split into separately-listed retail and network companies - a precondition for winning Crown fibre business.
Investors certainly seemed happy with today's development. In mid-afternoon trading, the company's shares were up 3% to $2.40, continuing their recent bull run.
