Chorus heads to court, initiates final copper price review

Chorus heads to court, initiates final copper price review

Summary: Network operator Chorus launches two-pronged attack on the regulator's decision to slash the price it can charge for broadband access over New Zealand's legacy copper network.


Embattled New Zealand network operator Chorus has applied to the regulator, the Commerce Commission, for a review of the Commission’s decision to slash the price Chorus can charge for its copper broadband service.

At the same time, Chorus is also filing an appeal to the High Court to determine whether the Commission applied the law correctly.

The final pricing principle (FPP) review Chorus has applied for involves economic cost modelling rather than benchmarking against other countries. Using the latter method, the Commission ruled Chorus should sharply reduce the price it charges for copper broadband access.

With its new fibre network not yet completed or populated with customers, that leaves a hole in Chorus's revenues. That in turn could affect the company's ability to fulfill its contract with the Government to build around 70% of the nationwide ultrafast broadband (UFB) network. 

“The decisions to apply for an FPP and file for a High Court appeal have not been taken lightly by Chorus’ board and management, but the limitation of two benchmarked countries despite the specific factors set out in section 18 and 18(2A) [of the Telecommunications Act] has left us with no choice.

"We have a duty to our shareholders to ensure we explore every option before us, including the High Court appeal,” Chorus's chief executive Mark Ratcliffe said in a statement to the NZX and ASX exchanges today.

Earlier this month, the Commerce Commission released the final price Chorus can charge internet service providers for services over its legacy copper network, setting it 23% lower than before at $34.44. The cuts apply from December 2014.

The Government looked likely to intervene through legislation until a successful consumer campaign by the Coalition for Fair Internet Pricing, which dubbed such efforts a "copper tax", made intervention politically unpalatable.

Last week, the Government's Parliamentary support for any such law change evaporated and Chorus's share price tanked to its lowest level since listing as a separate entity.

Completing the FPP processes could take two years, Ratcliffe said, but there is precedent for revised prices to be backdated.

“We recognise that the Commerce Commission has to operate within the regulations that are set in the Telecommunications Act. The Commission’s initial decision is a symptom of regulations that simply do not align with the Government’s policy of a transition to fibre.

“We are not looking to blame the Commission, because it can only referee by the rules of the game as they are set."

Coalition for Fair Internet Pricing spokesman Paul Brislen said Chorus was increasing uncertainty in the market with its latest moves.

"We thought Chorus wanted to increase certainty. What it is doing is delaying the final outcome and increasing uncertainty," he told ZDNet.

Ratcliffe said Chorus recognised the Government may no longer have the support it needs for direct intervention. However, he insisted, legislation is required to "free up the Commission to do its job in a regulatory framework that is aligned to Government policy."

Chorus quoted former Telecommunications Commissioner Dr Ross Patterson saying the current regulatory framework is not appropriate to support the transition to fibre.

“The ladder of investment regulatory framework that is currently in place is designed over time to remove the natural monopoly of the access network,” Patterson said. “However, the structural separation model adopted through UFB accepts that the access network is a natural monopoly and building competing networks is inefficient. The two frameworks cannot co-exist efficiently.”

In total, Chorus said, it will be investing around three dollars for every dollar of Crown funding to support the delivery of UFB ahead of demand. From 2008 to the end of 2011, about NZ$500 million was also invested in upgrading the existing copper broadband network.

The Crown has so far contributed about $160 million in funding towards the UFB rollout, in the form of debt and equity securities to be repaid by Chorus over time, the company said.

Topics: New Zealand, Broadband, Networking

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  • Outright, shameless greed

    on the part of Chorus. They got the Govt. Tender for Ultra-fast Fiber rollout in NZed, and now that they've seen Novopay (the State sector, public school Payroll scam artists) pulling the Govt. over the proverbial barrel with almost complete impunity, they obviously want on the same "pay me for absolutely no {extra} benefit" gravy train.

    Both of these corporate swindling outfits should be given a swift kick in their collectives @sses out the nearest exit.

    "Death's too good for them!"
  • SMM Copper Market Morning Review (2013-12-9)

    SHANGHAI, Dec. 9 (SMM) – Last Friday, the US Labor Department announced the nonfarm payrolls added 203,000 in November, above the 185,000 expected and slightly lower than October’s figure. Unemployment rate dropped from October’s 7.3% to 7.0% in November, compared with the 7.2% forecast. The upbeat job data boosted market confidence, driving the US stocks to regain the losses from the three days before. However, this also moved the Fed closer to QE taper. Base metals and precious metals plunged following the releases but soon rebounded. LME copper prices dipped to a low of USD 7,054/mt before a rally and finally closed at USD 7,111/mt, showing a nearly 0.5% rise. Market focus shifted to the Fed’s December 17-18 policy meeting which would be the last one for the year.

    China Customs data indicated that China imported 435,613 mt of unwrought copper and copper semis in November, compared with the 406,708 mt in October. YTD imports through the first 11 months were 4,100,547 mt, down 4.8% from 4,306,273 mt over the same period last year.

    As the US nonfarm payroll data beat forecasts and jobless data fell hit a 5-year low, Fed officials changed their tone towards the QE reductions, making it clear that the QE wind-down would be discussed at policy meetings in the futures. However, this did not cause panic in the market. The US dollar index climbed but soon fell back down, while commodities and the US stocks registered increases. This was probably because investors have admitted the Fed would finally exit from its stimulus measures and would unlikely raise short-term interest rate even if it decides to start slowing the asset purchases. The University of Michigan Consumer Confidence Index also advanced to 82.5 in December, better than expectation.

    China’s trade surplus hit USD 33.8 billion in November, its highest since February 2009, with exports exceeding both forecasts and October’s levels and staging a spike of 12.7% YoY. Imports, however, fell short of expectation and previous data, growing 5.3% from a year ago. Meanwhile, China introduced provisional rules for deposit receipts after last week’s new annuity policy for further interest rate liberalization and financial reforms. Market believed policies concerning deposit insurance would also be rolled out soon.

    European and the US equities increased last week, and base metals on London Metal Exchange also rose.

    On Monday, SHFE copper contract prices are expected to move between RMB 50,700-51,100/mt, while cargo holders in spot copper market may hold premiums firm at RMB 40-120/mt over SHFE 1312 copper contract prices.
    Metals China