Copper lines regulation pits fibre investors against consumers

Monday 4th February 2013

The Commerce Commission's draft regime for pricing network company Chorus's copper lines has divided submitters into investors pushing for a backdown by the regulator and consumer lobby groups and retailers supporting the initial version.

The draft determination from Telecommunications Commissioner Stephen Gale highlights an "incoherent policy environment" and risks undermining the government's vision for a nationwide ultra-fast broadband network, Chorus said in a submission on the draft determination.

Submissions were published on the commission's website.

That was because it would promote legacy services delivered over copper lines, over new generation fibre.

The company has applied for a final pricing principle (FPP) to find the true cost of the services rather than relying on a benchmark using international comparisons.

"The current regulatory uncertainty, the disappointingly low level of the draft determination and the incremental nature of the changes to the copper regime, means that Chorus feels compelled to apply for an FPP on UCLL (unbundled copper local loop)," the company said.

"Absent any other intervention we consider we have no option but to request application of the FPP to protect Chorus's interests and provide fairer investment signals for the industry."

Chorus estimates the draft determination lowering the prices the company can charge for unbundled bitstream access service will shave as much as 40 percent from its earnings. Among concerns for the network operator is that cheaper services on copper lines will undermine take-up of fibre-based services.

The regulator proposes a monthly regulated price of $32.45 for UBA, down from $44.98 at present.

Chorus shares rose 1.1 percent to $2.88 in trading today, and have shed 15 percent since the determination was made on Dec. 3.

Chorus found support from local fibre companies Enable Networks, Whangarei Local Fibre Company and Ultrafast Fibre, which also received government subsidies to build the UFB network, and also from fund manager Devon Funds Management.

The fund manager says the regulator's draft determination on the price was too low and "doesn't reconcile with market evidence of the forward looking costs of providing a nationwide broadband service in New Zealand."

The draft decision rankled policymakers, with Prime Minister John Key calling the move "very problematic" and Communications Minister Amy Adams referring it to her officials to assess the pricing impact, saying a pricing methodology appropriate to New Zealand had to be found.

The Telecommunications Users Association said it was "gravely concerned" over the potential for political interference after the commission had followed the law as it's written, fearing it could undermine the regulator's good work.

The lobby group said Chorus shouldn't have been surprised by the draft decision, with the industry discussing the law at some length in the lead-up.

"TUANZ is also concerned that putting the earnings of one company ahead of the reduction in price will see consumers (both business and home users) disadvantaged," it said.

Chorus's customers, including retail internet service providers, disagreed with its stance, with Telecom saying it has seen no evidence that lower UBA prices will undermine fibre uptake, and Kordia and CallPlus jointly submitting that the network operator has "many options to extract additional margin over and above the regulated price."

Wholesale prices for access to the copper lines were averaged as a result of legislation enabling Telecom to carve out its Chorus unit last year, something that annoyed rival telecommunications companies who said it would lift their costs.

At the time of the enabling legislation, Ministry of Economic Development officials downplayed concerns about the impact on copper-line prices, saying it wasn't "deemed significant" and that any increase in UCLL pricing may "have the positive impact of encouraging more investment and innovation on fibre."

BusinessDesk.co.nz

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