Chorus cheers, Spark jeers final copper broadband pricing

After three years, regulator the Commerce Commission finalises its thinking over the price of legacy network services.

New Zealand competition regulator the Commerce Commission today released its final price determinations for broadband services delivered over operator Chorus' legacy copper network.

In aggregate, Chorus said, the impact is charges around NZ$50 million lower than applied when Chorus demerged from Telecom New Zealand in 2011.

However, the final determination is also NZ$120 million higher than the pricing proposed by the Commerce Commission based on its original 2013 international benchmarking analysis.

Chorus' shares spiked sharply on the news, at one point up nearly 20 percent from NZ$3.10 at opening to a high of NZ$3.75.

The final determination has telco retailer Spark fuming, describing the it as the "worst possible Christmas present for New Zealand consumers and businesses".

Newly-minted Labour ICT spokesperson David Parker also chimed in.

"Today's shock announcement of a 10 percent increase in the regulated wholesale copper phone line price will cost all households - particularly in areas where they are still waiting for ultra-fast broadband," he said.

The Commission has proposed a glide path for monthly rental prices.

From 16 December 2015, the final prices are: an unbundled copper local loop (UCLL) price of NZ$29.75 in year one, reaching NZ$31.68 in year five (compared to NZ$23.52 currently), and; a final unbundled bitstream access(UBA) price of NZ$11.44 in year one, reaching NZ$10.67 in year five (compared to NZ$10.92 currently).

The determination will not be back-dated.

Chorus CEO Mark Ratcliffe welcomed today's determination but said ComCom opting not to backdate was "unfortunate".

Mark Ratcliffe.

"We have consistently said that the previous draft prices significantly underestimated the true value of Chorus' network, so it is pleasing that the Commission has taken on board the industry's repeated requests and used some of the real world costs of building a network," he said.

"The entire debate over the last three years has been about how much prices should reduce, and prices are still below the prices at demerger.

"It is disappointing to note the Commissioners' split decision on backdating is not in our favour, despite the strong precedent that backdating should apply."

Spark said the new charges are almost NZ$8 a month per connection higher than what retail broadband providers currently pay, and almost NZ$4 a month higher than the Commerce Commission proposed in its second draft decision in July.

"We had been hoping that the Commerce Commission decision would allow us to pass on some savings to customers from retail price increases earlier this year, if the Commission had stuck to its decision not to backdate when the new higher charges would take effect," Spark managing director Simon Moutter said,

Simon Moutter

"However, while the Commission has confirmed no backdating, given the significant and unexpected cost increase we will have to assess the impact of this decision on our ability to return savings to customers as previously indicated."

Moutter said while the decision is effective from tomorrow, it will take months before the higher charges flow through completely to customers.

"We will be advising customers of pricing impacts as soon as possible."

Spark said the decision means that New Zealanders will pay almost double the median regulated lines charges in other comparable countries and regulated charges for access to the "aging, decades old Chorus copper network" will now significantly exceed access charges for entry-level plans on the new state-of-the-art Ultrafast Broadband network.

Labour's Parker accused communications minister Amy Adams of presiding over a shambles.

"When the regulated price went down, the Government squealed and put enormous pressure on the Commerce Commission. Now watch National claim it's not their fault prices are going up," he said.

The big change in pricing from the original determination is a result of a change in the regulator's methodology. The Commission replaced benchmarking, which would have delivered a massive price cut to broadband services, with "total service long run incremental cost" (TSLRIC), which analyses the cost of providing networks and network services.

Chorus issued updated 2016 EBITDA guidance of NZ$580 - NZ$600 million. The company will now review the decision in full and its implications on matters such as dividend payments, which it suspended three years ago.