Crown Fibre to escape unscathed in telco review

ICT Minister Amy Adams endorses Crown Fibre Holdings; fails to give timeline for telco law review

ICT Minister Amy Adams has endorsed Crown Fibre Holdings and says its role is likely to continue following a sweeping review of telecommunications legislation.

“Crown Fibre Holdings has a demanding role to play in ensuring that the project [Ultra Fast Broadband] is delivered according to schedule and in line with government priorities,” Adams says in an email to Computerworld.

“I am confident that CFH is doing a good job to ensure the ultimate success of a world class fibre network.”

CFH was the government agency that negotiated the UFB contracts with partners including Chorus, which won around 70 percent of the build.

Adams brought forward a statutory review of telecommunications law following a draft determination by the Commerce Commission to create a cost-based price for the wholesale broadband product known as the unbundled bitstream access (UBA) service.

Chorus objected to the 58 percent proposed cuts to UBA pricing in the commission’s draft decision, saying such a price would reduce its earnings by as much as $160 million.

InternetNZ consultant Reg Hammond, who was manager of the ICT Regulatory Group at the Ministry of Economic Development (before it became the Ministry of Business Innovation and Employment) for eight years until June 2011, outlined the issue in a blog post:

“Essentially Chorus has to bear the brunt of rolling out a $5 billion fibre network. To finance this, it has a $929 million investment from government and it has the profits from its copper broadband network (a monopoly in most areas of New Zealand). The Commission’s UBA determination, Chorus says, will take a knife to those copper profits.”

Timetables

The Commission expects to finalise its UBA determination in August 2013, however the government says it will defer the date on which the new UBA price will come into effect to 2015.

In the meantime, there will be a wide-ranging statutory review of the whole policy framework for telecommunications regulation. Despite announcing the review on February 8, Adams was unable to give Computerworld an indication of when it might begin.

“The review is currently in the early stages of scoping, so no final decision have yet been made. However, under the UFB contracts, CFH is tasked with supporting the rollout of UFB on behalf of the Crown and its commercial partners in the project. These contracts are not part of the statutory review.”

CFH review?

In the CFH annual report for the year ended June 30, 2012, chair Simon Allen noted that the government had reviewed its role.

“Government decisions from the review will see CFH play a somewhat narrower role in relation to Co-Investment Partners and the Retail Service Provider community.”

However, when Computerworld asked to see a copy of the review, we were referred to the MBIE and told it wasn’t a review, but a letter written to the Telecommunications Carriers Forum.

“The letter was not a review of CFH’s performance – it was written in response to questions from the industry seeking clarification about the role of CFH once UFB partners had been finalised, to ensure the government’s expectations were clear,” says an MBIE spokesperson in an email to Computerworld.

The letter was sent on June 20, 2012, but it wasn’t date stamped due to an administrative error. It notes that as the “as [UFB] partners demonstrate compliance wtih contracts around timeliness and quality of deployment of the UFB, the CFH role “should move from close supervision, to periodic audit, and then to allowing self-certification.”

CFH also has a role in promoting the uptake of UFB by identifying priority users, encouraging interaction with local government and discussions with utility providers to achieve efficiencies, and general promotional activity.

Reducing costs

According to its annual report the cost of running CFH was around $8.1 million to the year ended June 30, 2012. This included salaries and other benefits for 17 full time employees and 10 contractors. A remuneration chart shows that 14 employees received more than $100,000 a year and the top salary was between $460,000 and $469,000. Other expenses included contractors and project managment costs of $1.6 million, legal costs of $821,000 and staff travel and accomodation costs of $365,000.

CFH spokesperson Anna Verboeket says the cost of running CFH is decreasing. “CFH is on track to meet its goal to lower operating costs in fiscal 2013 and further reductions may be expected as the project [UFB] matures.”

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