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Draft copper network pricing: too low, too high -- or just right?

Stephen Bell | Feb. 6, 2013
Submissions on the Commerce Commission's draft determination of unbundled bitstream access (UBA) pricing are divided largely on expected lines into "for" and "against" camps

Submissions on the Commerce Commission's draft determination of unbundled bitstream access (UBA) pricing are divided largely on expected lines into "for" and "against" camps

But while most submissions either say the Commission got the figure about right or pitched it too low, no-frills ISP Flip, a subsidiary of CallPlus, reckons the price is still too high and compromises its business model.

When pricing moves from a retail-minus to a cost-plus basis -- the founding principle of the review -- Flip expected to be paying Chorus "no more than $27" on its own cost estimates. The draft figure is $32.45, down from a present level of $44.98.

Even taking into account the higher cost of linking to most of its customers through a roadside cabinet rather than the exchange, Flip thought its retail price of $49.95 a month would be viable. Though it makes a loss on cabinetised customers at present levels, "our expectation was for the cabinetised customers to be viable in two years' time when the new regulated price became effective," says Flip's submission

The Commerce Commission's draft UBA price threw these estimates out, Flip says.

"You can imagine our concern for our rationally thought-out business plan when we see the draft pricing is significantly higher than the cost, and we know this for a fact as we have deployed a smaller scale version of exactly the same thing."

Flip was further discouraged when Prime Minister John Key made it clear that government would consider changing the law to raise a price it sees as too low.

At stake, in the eyes of those who think the draft price is too low, is the viability of the Ultra Fast Broadband (UFB) fibre network and the encouragement of adequate future investment in fibre. Too low a price for the copper-based UBA will discourage customers from moving to fibre and so discourage investment in UFB, they suggest.

Chorus wants pricing higher

Chorus, installing the majority of UFB links, is seeking a lift in the UBA pricing, cites Section 18 (2A) of the Telecommunications Act, which gives the regulator room to consider the effect on forward-looking investment.

"In determining whether or not, or the extent to which, competition in telecommunications markets for the long-term benefit of end-users of telecommunications services within New Zealand is promoted, consideration must be given to the incentives to innovate that exist for, and the risks faced by, investors in new telecommunications services that involve significant capital investment and that offer capabilities not available from established services," says the clause.

Chorus says "the aggregate effect of the Commission's final benchmarked unbundled copper local loop (UCLL) decision and the draft UBA decision, announced on 3 December 2012 "starkly highlight the incoherent policy environment".

 

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