NZ ComCom to require congestion-free links on Chorus UBA network

Chorus will be required to maintain congestion-free links for its UBA service, with the regulator saying in its draft decision that the copper network remains important despite the UFB rollout.

The New Zealand Commerce Commission (ComCom) has published its draft determination for its review of the non-price terms of telecommunications carrier Chorus' unbundled bitstream access (UBA) service, deciding that Chorus needs to upgrade its capacity and monitor congestion.

The UBA allows other retail service providers to provide customers with fixed-line broadband services by leveraging Chorus' legacy copper lines, equipment, and software. Regulated UBA services are provided at a designated regulated price, while Chorus can charge different prices for its UBA commercial variants.

"Our draft decision is that Chorus should upgrade its capacity as needs grow so that retail telecommunications companies and consumers can continue to make best use of the capacity of the copper lines," said Telecommunications Commissioner Stephen Gale.

"This approach will enable retailers to continue to offer competitive differentiated broadband products over copper lines. Although the UFB [Ultra-Fast Broadband] footprint is expanding rapidly, the copper network will remain an important delivery platform for a significant portion of the population in the near future."

The ComCom had set out to review whether the copper service is fit for purpose after changes in the telecommunications market over the past few years, including growing demand for bandwidth; newer technology networks being built; unbundling of copper local loop by access seekers; the structural separation of Telecom into Spark; a lack of clarity on regulated UBA; and the regulated UBA pricing set last year.

In the ComCom's Section 30R review of Chorus' Unbundled Bitstream Access service: Draft determination, the regulator proposed requiring Chorus through the addition of a service specification to maintain congestion-free links between the digital subscriber line access multiplexer (DSLAM) to Chorus' first data switch along the local aggregation path (LAP).

"We propose setting a link utilisation threshold of 95 percent that traffic on a LAP cannot exceed over a 15-minute period," the regulator said.

"We propose requiring Chorus to report on percentage utilisation of each UBA LAP and network plans for links nearing capacity."

However, the ComCom also decided not to require Chorus to maintain uncongested links on the 19,000 lines in its legacy ATM network across areas where federal government funding is targeted for the second phase of the Rural Broadband Initiative (RBI), as this might lead to "inefficient investment".

"We will consider whether a new section 30R review focusing on the ATM network is required when a final decision regarding phase 2 of the RBI is made. In the meantime, we intend to monitor congestion issues on Chorus' ATM network," the ComCom added.

The ComCom will also not amend the UBA standard terms determination (STD) in regards to the treatment of VDSL; not amend Chorus' reporting obligations; not amend clause 10 of the General Terms; and will not provide Chorus with additional incentives.

It will, however, require Chorus to add a 10GigE handover connection service to the UBA STD due to the growth in data usage.

"Parties have noted that growth in bandwidth demand means that the current handover connection services in the UBA STD are no longer sufficient to deliver the regulated UBA service," the ComCom said.

"We have therefore decided that adding a new 10GigE connection option to the UBA STD will ensure that Chorus and access seekers can effectively manage end-user traffic where a 10GigE handover connection is available."

The ComCom is accepting submissions on its draft decision until November 30 and cross-submissions until December 15, with its final decision due to be published on March 14, 2017.

The New Zealand regulator began looking into the UBA non-price terms in April, examining whether the UBA STD is "fit for purpose" as described under Section 30R of the Telecommunications Act 2001.

"UBA is the most common wholesale input used by retail service providers to deliver fixed-line broadband services to their customers," the ComCom said at the time.

"There are currently approximately 1.1 million UBA connections in New Zealand. The regulated UBA service is delivered over Chorus' fibre-to-the-node (FttN) network."

The final UBA pricing determination almost a year ago resulted in the ComCom setting it NZ$50 million lower than that applied when Chorus separated itself from Telecom -- though NZ$120 million higher than the original pricing proposed by the ComCom.

As a result of this pricing decision, Chorus reported earnings before interest, tax, depreciation, and amortisation (EBITDA) of NZ$594 million for FY16, down by NZ$8 million, although net profit remained stable, at NZ$91 million on revenue of NZ$1.008 billion, which was up slightly from the NZ$1.006 billion reported last year.

"The combination of greater regulatory clarity and operating momentum has allowed Chorus to return to managing its business for long-term shareholder value. EBITDA of NZ$594 million is in the top half of guidance, reflecting continued good cost management across the business, and dividends were resumed in February 2016," said CEO Mark Ratcliffe, who will be stepping down from his position in the middle of next year.

"While the final copper pricing outcome was an improvement on the benchmarked pricing, it has not restored our financial position to demerger levels, and the regulatory framework that may apply from 2020 remains far from clear. We are therefore continuing to take a measured approach to ongoing investment."

Ratcliffe added in August that Chorus is looking to the UBA regulatory decision and the possible amendment of the domestic backhaul market regulatory framework to protect downstream competition in the face of emerging technologies and new nationwide networks such as the Ultra-Fast Broadband (UFB) rollout.

"A regulatory framework that recognises broadband as an essential utility is necessary if New Zealand is to encourage ongoing improvement and extension of its broadband capability," Ratcliffe said.

"We welcome the government's current review of the regulatory framework for communications services and believe it is an opportunity to align and deliver on the interests of customers and investors. A stable transition in pricing at 2020 is central to this and could help New Zealand achieve better broadband coverage well beyond the government's current goals."

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