5 Dec 2013

Chorus gets hard word from Government

8:49 pm on 5 December 2013

The Government has made it clear that embattled telecommunications company Chorus will have to pay the lion's share of any shortfall in funding for the ultra-fast broadband network.

Communications Minister Amy Adams said on Thursday that a verbal briefing from Ernst and Young Australia has confirmed that Chorus is in trouble. A final report into its finances will be released next week.

Amy Adams.

Amy Adams. Photo: RNZ

Ms Adams says a preliminary conclusion is that copper price changes will have a significant impact on the company's financial position and will put the broadband contract at risk.

The Commerce Commission ruled in November this year that Chorus must halve its wholesale price for copper-wire broadband from December 2014.

The Ernst and Young report says the company is at risk of not meeting its contractual commitments with Crown Fibre Holdings to build about 70% of the ultra-fast broadband network.

Ms Adams says the budget of $1.35 billion for the UFB rollout will not be increased, and can't rule out taxpayers having to pay more for the project.

The minister said on Thursday she hopes Chorus will be able to find a way to keep the broadband rollout on track and within budget.

Mark Ratcliffe.

Mark Ratcliffe. Photo: CHORUS

Ms Adams says Crown Fibre Holdings will discuss with Chorus whether variations can be made within the contract, which could include the timing or structure of payments and technical changes to the build. She hopes none of those changes will result in slower broadband speeds or a longer build time.

Chorus chief executive Mark Ratcliffe says the company is trying to find a solution to its financial troubles and remains committed to the project.

"We're going to have to work on quite a big range of initiatives. I guess we're in the situation of like any family that's had its income reduced, you have to look at opportunities across every single thing you could do just to how things could be done more cheaply, more effectively there with the hope you can continue to deliver some of the same outcomes."

Mr Ratcliffe says the cut in copper prices, which Chorus is appealing against, is expected to cost the company $1 billion in profits by 2020.

More corporate welfare, says Greens

Opposition parties say the Government is using the review of Chorus' financial position as an excuse for another round of corporate welfare.

The Green Party said taxpayers' money will be used to bail Chorus out so the Government can finish the UFB rollout on time. Co-leader Russel Norman believes the Government will come to the rescue.

"I think it's entirely possible that we could see some kind of Rio Tinto deal, because basically Chorus has got the Government in a pretty weak position because the Government is now so committed to this particular project and the original contract as designed by (minister) Steven Joyce doesn't seem to work."

Dr Norman says it is not uncommon for the Government to bail out its favourite projects.

The Labour Party said the Ernst and Young review is just a fig leaf for another round of Government corporate welfare.