NZ Commerce Commission investigates backhaul services regulation

The ComCom is looking into whether the backhaul market is appropriately regulated and competitive despite new technologies and networks.

The New Zealand Commerce Commission (ComCom) has published a discussion paper seeking feedback in its bid to examine the domestic backhaul market in order to decide whether the regulatory framework should be amended to protect downstream competition in the face of emerging technologies and new nationwide networks.

The paper -- A Section 9A Backhaul Study Preliminary questions in understanding domestic backhaul services -- states that while upstream services have much competition, from ISPs including Vocus, Vodafone NZ, and Spark, downstream services are largely provided by Chorus.

Under Schedule 1 of the Telecommunications Act, there are three designated backhaul services supplied by Chorus: The unbundled bitstream access (UBA) backhaul service; the unbundled copper local loop (UCLL) backhaul service between distribution cabinet and telephone exchange; and the UCLL backhaul service between telephone exchange and interconnect point.

"Backhaul services are a key component of the telecommunications market, and critical for ensuring New Zealanders can benefit from access to quality broadband services," Telecommunications Commissioner Stephen Gale said.

"We want to explore whether the current regulatory regime is fit for purpose, so we would like to hear from anyone with an interest in this sector."

The ComCom is seeking feedback on whether non-Chorus providers have to deal with Chorus to provide national transmission capacity; the effect that the New Zealand government's rural broadband initiative (RBI) and ultra-fast broadband (UFB) network will have on demand, supply, coverage, capacity, and pricing of backhaul services; any "major" changes in the market that have altered demand for backhaul services; what has caused the "significant drop" in commercial backhaul pricing in New Zealand; whether the pricing could cause competition issues; any pricing options that would be uncompetitive; what constitutes being close enough to a Chorus exchange to be a competitive constraint on Chorus; and by what criteria the ComCom should assess competition.

The ComCom has also asked submissions to address whether the definition, scope, and geographical classification of backhaul services are adequately defined; whether emerging technologies in backhaul transmission have been overlooked; any technological constraints on providing backhaul services; whether Ethernet is the default technology between main trunk and metropolitan; whether the type of traffic determines the choice of backhaul transmission service; the bandwidth options required by future demand; whether there are any backhaul services currently not subject to competition that should be regulated; whether the ComCom has identified the local access nodes that are of importance to network operators and access seekers; any recent or upcoming changes in the backhaul market; where any excess capacity in backhaul exists; where any lack of capacity exists, and how long expansion could take; the amount of backhaul services supplied on a link-by-link basis rather than as a national service, and the drivers behind this; any non-price characteristics that could affect backhaul demand; and what drives the choice to purchase backhaul via one of the available options.

Originally flagged in its decision to investigate deregulating wholesale access to Spark's fixed network, Gale said in July that the ComCom would also "monitor the provision of backhaul services", as they have evolved substantially over the past few years.

"A number of issues relating to competition and the current service descriptions have been raised in submissions during the current process," Gale said last month.

"We expect to produce an issues paper towards the end of this year to obtain further information and industry views on this matter.

"Although the Commission has decided not to investigate whether the backhaul services should be removed from Schedule 1, a separate process will be undertaken to monitor backhaul services under section 9A of the Act," the ComCom added in its final decision.

"As part of this process, we will consider the provision of regulated and unregulated domestic backhaul services. We will seek to identify whether there might be any emerging competition issues, or issues related to the current standard terms determinations that need to be addressed."

The New Zealand ComCom is accepting submissions until September 23, and is planning to publish a draft report in February 2017, receive submissions on this during March 2017, and publish a final report by mid next year.

In Australia, the telco regulator decided in April to lower backhaul pricing "significantly", with short-distance, low-capacity 2Mbps services to have an average price of around 13 percent lower in metropolitan areas and 22 percent lower in regional areas, while long-distance, high-capacity 100Mbps and above services will drop by an average of 76 percent in metro areas and 78 percent in regional areas.

"We have seen a downward trend in commercial transmission prices in recent years, and this trend is reflected in lower DTCS [domestic transmission capacity services] pricing, particularly on high-capacity, regional routes," Australian Competition and Consumer Commission (ACCC) chairman Rod Sims said.

"Because transmission is an essential input for many services, we consider that lower prices will promote competition in downstream markets and put more downward pressure upon wholesale transmission prices, particularly in regional areas. We expect that these lower prices will be passed on to end users in the form of lower prices and new, innovative services."

Lowering the prices will "promote competition and allocative efficiency for downstream markets", the ACCC said.