Douglas Roger: General Debate 
Douglas Roger: General Debate 
[Volume:673;Page:19828] 
Hon Sir ROGER DOUGLAS (ACT) 
: 
 I want this afternoon to talk about Telecom’s new monopoly status and what that will mean for the New Zealand economy. On 22 April 2008 John Key said that the ultra-fast broadband investment would be made “alongside additional private sector investment …” and would be “making sure we do not end up lining the pockets of incumbent industry players.” Oh yeah! If only. 
Steven Joyce has said that it is a good deal for the country. In fact it is the worst possible deal for the country. We have a Government investment of $929 million which has a present-day net value of $140 million. The deal the Government has entered into with Telecom has been portrayed as a partnership. It is not a partnership. Telecom is risk-free; the Government has taken all the risk. Telecom will take all the profit and the Government will take all the costs. The deal is portrayed as a Government investment. It is not an investment; it is a subsidy a massive subsidy. The Government will get almost none of its money back. The deal perpetuates Telecom’s infrastructure monopoly for ever. It kills Telecom’s competitors without compensation. There is no take-up target which one would expect to be essential for an industry of this nature. 
We have what I would call the Crown Fibre Holdings sham investment. The Crown investment will be made through an equal contribution of equity and debt—so-called. The equity and debt securities have no voting rights no dividend payments will occur before 2025 and full dividends will be paid only after 2036. The debt securities are unsecured and non - interest bearing. Debt securities will be redeemed in tranches from 2025 to 2036. Chorus may elect to redeem the equity and debt at any time. 
That outline comes straight from Telecom. The investment is a simple gift—a gift to Telecom. Crown Fibre Holdings pays for the entire $929 million of community infrastructure. The $464 million equity proportion has no rights to equity; it is actually a loan. Telecom has from 2025 to 2036 to repay and Telecom has full use of the $929 million interest-free for 14½ years. It can pay it back at face value. 
Telecom has no real costs until the customer connects. It gets an assured cash flow immediately. It pays out about $1381 per connection—that is the company’s calculation—and it gets back a cash flow of $492 a year a gross return of about 35 percent. The value to Telecom is simple to calculate: $929 million for 14½ years at let us say 7¾ percent. The commercial compound interest saving of that for Telecom is $1.8 billion—$1800 million—or to put it differently the Government’s $930 million is on generous terms. 
Well what do we say? Generous? Yes. The net present-day value of Telecom’s repayment on this funding is $140 million. That is not my calculation; it is the calculation of a leading private wealth company based on Telecom’s figures. An independent assessment says that the present-day value of the subsidy is $800 million—$800 million. My minority report on ultra-fast broadband investment proposals said that the investment first of all was not necessary but if the Government were going to spend $1.5 billion it should spend the extra $400 million and own the lot.