Chorus rolls out ex-Telco Commissioner Patterson to press for regulatory overhaul

Tuesday 17th September 2013

Chorus, the network operator carved out of Telecom in 2011, has turned to former Telecommunications Commissioner Ross Patterson in its bid for a rewrite of regulation governing its ability to set prices on its ageing copper lines.

Patterson, who was passed over for another term as commissioner by Telecommunications Minister Amy Adams, says the current regulatory framework isn't fit for purpose and undermines the government's vision to switch people from the old copper lines and on to the under-construction fibre network. He provided a report as part of Chorus' submission to an early review of telecommunications law.

"The policy objective is no longer to promote competition in telecommunications markets by driving competition deeper and deeper into the network of a vertically integrated incumbent," Patterson said in his report. "Instead the policy is to create a structurally separated network to replace the legacy copper network with a next generation fibre network in the most efficient manner, to ensure consumers receive the benefits of ultrafast broadband as quickly as possible."

Patterson was tasked with forming a view on the 'best practice' telecommunications regulatory framework which should apply to the new fibre network from 2020, and what transitional arrangements should be put in place to attain that.

Adams sought the review after Telecommunications Commissioner Stephen Gale proposed sharp cuts to the regulated price of unbundled bitstream access, a copper-based service, something the government viewed as undermining its bid to underwrite the fibre network build.

The proposed cuts to UBA pricing came after a three-year freeze and were seen as a way to offset the national averaging of the price of unbundled copper local loop access, which effectively increased prices for urban customers, accounting for about 70 percent of users as part of a proposed transition period.

Submissions on the review closed last Friday and came with a late push by a collection of lobby groups claiming Chorus would unfairly get some $588 million in regulatory relief if wholesale prices for unbundled bitstream access aren't cut as sharply as the Commerce Commission wants.

Vodafone New Zealand, which acquired fixed line assets when it bought TelstraClear, opposed government intervention in its submission, saying Adams' proposal "does nothing to guarantee success of the UFB initiative" and was "jumping the gun" after just two years of the fibre programme.

The country's biggest mobile phone operator said short-term intervention was unprecedented, favouring only Chorus and undermining consistent regulation of the network monopoly.

Chorus said in its submission "the copper pricing framework is threatening to undermine the key migration policy by shifting the price relativity."

"While Chorus has got on with it and completed 20 percent of its fibre build, the industry is still heavily focused on copper pricing."

The network operator had 19,000 fibre connections as at June 30 out of its 1.78 million total fixed line connections and entry-level products are currently cheaper than services on the old network.

Chorus wants UBA and UCLL pricing to be frozen until 2020, saying after the time of the demerger it was envisaged that at a combined $45.92 a month, which it submits would create "the best opportunity for UFB's success."

Since the fourth quarter of 2011, when Chorus was carved out of Telecom, government figures show consumer prices for telecommunications services have dropped 7.1 percent. Over the same period, telecommunication and information technology input prices for producers, which is what firms pay, fell 1.8 percent while output costs for producers, the level at which firms sell, declined 3.9 percent.

Chorus said the review of this transitional period should inform any future consultations for the framework after 2020, and wants the government to change the way the Commerce Commission sets its regulated price.

It also wants the government to consider ways Chorus can work with retail service providers, which it says is vital to UFB's success, to accelerate the migration to fibre post-2020.

Shares in Chorus fell 0.7 percent to $2.90 today.

BusinessDesk.co.nz

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