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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

"The legacy regulatory framework was set up to ensure that a vertically integrated incumbent provided wholesale services and to encourage investment," Chorus says.

"The issues that the framework was designed to address have been resolved with UFB -- and it's now obvious that the framework is out of date and is at risk of undermining the government's UFB vision - with some interpreting section 18(2A) as being of no effect and the future UFB investment being treated as sunk."

Chorus says the industry may be forced to ask the Commerce Commission to move beyond the Initial Pricing Principle (IPP) of the draft determination, based on international benchmarks and determine a Final Pricing Principle FPP), which will be based on actual Total Service Long-Run Incremental Cost (TSLRIC). This will be a protracted exercise, Chorus acknowledges.

Consumers vs Chorus?

Opposition ICT spokesperson Clare Curran presents the debate starkly as a trade-off between the interests of consumers and those of Chorus and its investors.

"Our current government seems to be committed to propping up commercial interests over the public good by subsidising and protecting the interests of a few big players such as Chorus," she says.

"Chorus's deliberate delay tactics with the Commerce Commission are a blow to Kiwi consumers and must be condemned by the government."

Other submitters are sceptical of the argument that the draft pricing, if confirmed, will slow movement to UFB.

"We have seen no evidence that lower UBA prices will materially undermine fibre take-up," says Telecom. "We believe New Zealand's investment in fibre will be supported by consumers, who will value the additional capabilities and speeds fibre services will provide."

Section 18 does not empower the Commission to move away from a cost-based price for the sake of incentivising a move to fibre, says InternetNZ.

"We consider that the major incentive for Chorus to invest in the UFB is that it has a contract with the government which subsidises the UFB rollout. It entered into this contract in the full knowledge that the Commission would re-determine the UBA price to meet the cost-based pricing principle of the amended Act.

"Chorus must also have been aware that a move to cost based services would almost certainly reduce the price of UCLL and UBA."

The Commission is right to reject criticisms of the UBA price because it does not agree with some parties' expectations, says Vodafone's submission.

The Commission had effectively raised the question "whether a price that exceeds the identified benchmark range could be justified to encourage investment in new broadband services," Vodafone adds. "We believe that the answer to this question is no."

"The Commission is restricted to making those changes that are necessary. The objective of its UBA review is transition to cost based pricing. We doubt that setting a price that exceeds the benchmark range could be shown to be genuinely 'necessary' to achieve this objective."


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