A call from the former chairwoman of Chorus and advice from officials were behind Prime Minister John Key's comment that there was a chance Chorus "will go broke", he says.



The telecommunications infrastructure provider faced ruin if proposals from the Commerce Commission on copper broadband pricing were adopted, Key said on Friday. He refused to elaborate on the comment yesterday, but was forced to give details during question time today in his first clash with new Labour leader David Cunliffe.



Key said the advice was "provided to Cabinet based on commercial, in-confidence discussion between Chorus and MBIE [Ministry of Business Employment and Innovation] officials".



Cunliffe then asked if the comments were based on a call from the former chairwoman of Chorus, Sue Sheldon, on the day the Commerce Commission's draft decision was released in December.



Key said: "Probably, yes. The chairman gave me an indication of her thinking about the impact that would take place. That gave me some understanding of the issues that they would face."



Yesterday, Key refused to say what led him to make the statement. The Government had received advice "but I can't tell you where that advice came from", he said.



Asked whether it was from Chorus, government agencies or outside parties, he said: "I can't tell you. I don't have the details exactly of where that advice came from."



He referred to a Chorus press release in December that said company management expected the impact of the proposed changes "could require Chorus to fundamentally rethink its business model, capital structure and approach to dividends".



Earlier today Communications Minister Amy Adams appeared to back the accuracy of Key's comment, saying it was not unreasonable that commission's draft could hit Chorus' viability.



However, she appeared to know of no advice from officials.



"What we've seen is the stuff that's absolutely in the market already," she said.



The commission's proposals would damage Chorus' debt to underlying earnings ratio and threaten the company's investment grade credit rating, "as far as I'm aware".



They could also breach other contracts the company had in place.



"You start to very quickly get into the realm of, you know, if this happens, then this, in a domino effect, and you have to say it's not outside the realms of possibility they could have serious impacts on their viability," she said.



MBIE said in an email today, that it "provided a range of briefings to ministers on UFB [ultrafast broadband]-related issues but it is inappropriate for us to comment on their content. You need to talk to the [prime minister's] office about any advice they may have received on the Commerce Commission decision".



On Friday, Treasury said that it provided no advice on the impact of the Commerce Commission's draft decision on Chorus. However, a spokesman said today that a report had been provided, without giving details.



The Coalition for Fair Internet Pricing said in its submission on Adams' discussion document that Chorus should not have expected to continue to pay dividends through the period in which it rolled out the UFB network. There was no evidence Chorus' viability was in doubt.



Cunliffe said yesterday that Key was "grossly overstating" the threats to Chorus.



He accused the Government of a "shabby deal".



"I think the prime minister is inappropriately engaging in meddling in a regulatory process which ought to be transparent and legally binding.



"I note that there are issues arising out of that which are yet to play out," he said.



"Isn't it interesting the arm-twisting that has gone on around that, and one wonders why the Government is so intent on doing a deal for one communications company, not only at the expense of others, but at the significant expense of the New Zealand public?"



The proper process was for the Cabinet to view the Commerce Commission's final recommendations and accept or decline, at which point the commission could make amendments, Cunliffe said.