Telco commissioner faces first big test

UPDATE 4PM: Decision on pricing for access to the copper network delayed

UPDATE 4pm

The Commission Commission announced this afternoon that it has delayed a decision on the price Chorus can charge for access to its copper network.

In a media statement, the Commission says decisions planned for Friday 23 and Friday 30 November will now be announced on Monday December 3.

“By making these announcements together, the Commission will be able to provide a more complete picture of the combined effect of both prices. It’s important to note that only the UCLL price is final, while the price for the UBA service is provisional and will be open for consultation,” said telecommunications commissioner Stephen Gale.

Original story

Telecommunications Commissioner Stephen Gale faces his first major test since taking the role in July, as he tackles new pricing for access to the copper network.

The decision is expected to be released this Friday, November 23.

Currently access seekers pay two prices to put their equipment into exchanges owned by Chorus. They are referred to as Unbundled Copper Local Loop (UCLL) — an urban price of $19.75 and a non-urban price of $36.63.

Under the legislation to enact LLU, the price is due to be averaged.

Chorus CEO Mark Ratcliffe says the new price should be set at the amount you would get if you averaged the two current prices — $24.46.

“We’re not looking for an increase, we’re looking to get exactly the same revenue post-2014 as we’re getting now. But if you go from de-average to average that means that the lower price gets moved up, and the higher price gets moved down,” he says.

“The purpose of going to an average price was so that the end customer could enjoy the same price nationwide.”

Ratcliffe says if the price is lower than $24.46 it will reduce Chorus’s revenue and dividends to its shareholders. “It shifts profit away from us to other parts of the industry,” he says. “Combined Telecom and Vodafone are about 90 percent of the market, so if you reduce our revenue, 90 percent goes to them, and a small amount goes to the other players.”

Chorus was suprised by the Commission’s decision to undergo a benchmarking process – that is comparing prices for similar services in other countries – to determine the new average price. Ratcliffe says market analysts are looking to New Zealand for regulatory certainty.

“We continue to be disappointed at how long everything is taking to do. And the uncertainty that provides for investors,” he says.

“I’ve just been around the world and the overwhelming thing [they are saying is], ‘we are watching very closely about what’s going on to see whether or not this is a country where you can expect regulatory certainty’.”

But Gale says that Chorus should not have been surprised by the decision to use a benchmarking process to determine the average price.

“By the time they’d signed the agreement, by the time they got to the end of the year and advised shareholders and so on the fact that we were reviewing that price they would have known for several months because our process started in the middle of last year. So they would have been alerted that some change in the $24.46 was possible.”

CallPlus CEO Mark Callander, whose company has unbundled 150 exchanges — the most exchanges of any access seeker — wants the average price to be nearer the current urban price of $19.75, otherwise LLU players will face significant cost increases.

“In the whole process it’s a little unclear where the regulator is,” he says, noting that there has been consultation and even a two-day conference on the issue.

CallPlus told the conference that copper and fibre will coexist for seven years or more.

Callander refutes Chorus’s earlier claim that reducing the cost of access to the copper will disincentivise uptake of the Ultra Fast Broadband network. “It’s a tragedy to think that putting this up by $4 is going to make fibre more attractive. There are many other drivers than access. There is data, lots of aspects to consider.”

Callander says the UCLL decision will be the first indicator of the new regulatory regime that the telco commissioner will put in place.

“A lot of good work has been done, but now is not the time and sit back on your laurels and say we’ll let the market decide, because you could have a dangerous slide and go back to square one.”

Computerworld understands only five percent of lines are unbundled, and while the decision as to what the new UCLL price will be is itself significant, it will also have an effect on the Unbundled Bitstream Access (UBA) price. The UBA is the broadband service that includes the copper line plus the electronics layer.

Gale says the UBA is calculated based on the “retail-minus method”.“Before demerger it’s what Telecom was charging, less a margin. Now the legislation requires that in two years time the UBA service becomes cost-based,” he says. “It’s not to be a retail minus calculation that’s gone on before.”

A draft decision on UBA pricing is expected later this month, with a final determination due to be announced next year.