Small win for Chorus in Comcom draft decision on copper pricing

Regulated telecommunications network operator Chorus had a small win in its long-running stoush with the Commerce Commission over the prices it can charge for access to the traditional copper lines network for broadband internet services.

However, Chorus chief executive Mark Ratcliffe says the draft new rates, proposed today, will still knock an $80 million hole in annual operating earnings.

“This compares to the aggregate annualised EBITDA reduction of around $170 million,” he said in a statement immediately after the draft determination was issued, in which the competition watchdog has proposed raising the monthly total charge allowable for the unbundled copper local loop (UCLL) and for unbundled bitstream access (UBA) by $3.95 a month to $38.39, from the $34.44 monthly regulated price that came into effect on Dec. 1.

“Consumers should not expect to see any rise in retail pricing,” said Ratcliffe in a veiled reference to Chorus’s belief that telecommunications service providers are unlikely to pass on any savings delivered by the review process.

The combined UCLL and UBA services dictate the base cost for provision of broadband internet services over the copper network, which competes with fibre-optic cable-based services that are becoming available under a government-subsidised national roll-out, the majority of which is being installed under contract by Chorus.

Chorus had sought the commission’s reworking of regulated charges because it argued lower than anticipated monthly charges for copper-based broadband services would frustrate the government’s policy goal of rapid public uptake of UFB.

“We accept the possibility that an uplift could be justified to avoid slowing the uptake of UFB,” said telecommunications commissioner Stephen Gale. However, advice from international experts found there was adequate allowance already for any network risks to UFB uptake.

The new draft rate, which does not yet apply and is subject to further submissions from the industry, is still $6.49 per month lower than the $44.98 monthly rental for UCLL and UBA that had applied until yesterday.

The increase is composed of a rise in the UCLL monthly charge from $23.52, established in an international benchmarking exercise completed in 2012, to $28.22, and a small decrease in the monthly regulated charge for UBA of $10.17, compared with the $10.92 charge that has applied since yesterday.  Both the newly applied rates will continue in place until the current consultatons are concluded, with some prospect of backdating for the final decision on the UCLL price.

The UCLL price has risen because the commission concluded New Zealand’s copper network had a higher underlying cost of replacement because of the number of long lines connecting to small numbers of customers in remote rural areas, among other factors.

“There appear to be uniquely New Zealand factors, such as the dispersed nature of the rural network, that may differentiate our UCLL prices from the overseas benchmarks,” said Gale.

A final pricing decision will be made after the consultation process that will now occur, with the earliest date that the final UBA price could apply being Dec. 1 this year.

The commission is also seeking views on whether the commission should conduct a review of the standard terms determination for the UBA service and, if so, what it should examine.

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