Plunging Chorus share price should have rung regulator’s alarm bell, lawyer says
By Paul McBeth
March 17 (BusinessDesk) - The sharp drop in Chorus’s share price after the Commerce Commission signalled plans to slash what the network operator could charge for access for services on its copper lines should have rung an alarm bell at the regulator, the High Court heard today.
Since November 2012, various Commerce Commission statements on the regulated price Chorus could charge on its copper lines have wiped as much as 60 percent from the share price, something that the regulator should have recognised when making its final determination on the charges, Chorus counsel David Goddard QC told Justice Stephen Kos in the High Court in Wellington.
The shares rose 0.3 percent to $1.68 and have gained 16 percent this year.
The stock selloff should have told the regulator the market didn’t anticipate the size of the proposed reduction in pricing, and made it consider section 18 of the Telecommunications Act, which aims to protect innovation and investment in the sector, Goddard said.
The regulator also should have considered what impact regulatory shocks might have on the wider market, and should have telegraphed its thinking, he said.
“You need more information, not less, to justify intervention of that magnitude,” he said.
The regulator didn’t pick up on other warning signals, such as when the number of countries the commission was using as a benchmark to set the initial price was whittled down to two nations, Sweden and Denmark, he said.
The regulator didn’t have a sound reason for limiting its benchmark price range without taking in other factors, or the legislative requirement to support investment, he said.
Chorus is appealing the commission’s final determination in November last year setting the unbundled bitstream access monthly price at $34.44 per line, up from the $32.35 price initially mulled in his draft decision, with the additional UBA component accounting for $10.92 and the unbundled copper local loop accounting for $23.52.
Goddard said the regulator erred in law when setting the price Chorus can charge for access to its UBA services in that it didn’t have any evidential basis to narrow its inquiry and ignored a section of the legislation aiming to support the government’s aims in building a nationwide fibre network.
The benchmarking process lacked statistical rigour, and the regulator should have had a wider band for what could have been a plausible price range in setting the price band, he said.
The court heard a cross-appeal by Orcon and by some consumer agencies had been dropped. The Commerce Commission will put forward its argument after Chorus, followed by Vodafone New Zealand, Orcon, and finally Telecom.
The judge-alone hearing is set down for four days and is continuing.