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Chorus 'Boost' service likely to breach rules, regulator advised

Chorus's [NZX: CNU] proposed Boost variant service would likely breach the terms of its regulation, according to legal advice received by the Commerce Commission.

The antitrust regulator is seeking feedback on a legal opinion by David Laurenson QC and James Every-Palmer, which took the view Chorus's plans breached its 'good faith' obligation, the commission said in a statement. The lawyers said Chorus's plans were inconsistent with the 'good faith' provision of its standard terms determination, in that they were an attempt to constrain the regulator service on the copper network, would hold back end-user throughput, and would define and constrain regulated services by Chorus's view of reasonable usage.

The commission is considering the extent to which the new variant services would complement or substitute existing regulated unbundled bitstream access services, what investment they would need, and whether the changes are consistent with the Telecommunications Act. The regulator will also consider whether the proposed changes, including the withdrawal of the VDSL and bandwidth management services, are allowed under existing regulation, and what the impact will be on consumers.

The commission sought the legal opinion after Spark New Zealand [NZX: SPK], formerly Telecom Corp, requested an investigation. In its submission on the Boost services, Spark said it didn't see enough commercial value in the variants to warrant a premium, and that combined with plans to degrade existing regulated service, breached the good faith obligation.

The regulator has given parties until Sept. 18 to comment on the legal opinion.

In a separate statement, Chorus said the commission's legal advice appeared to be "inconsistent with the regulatory guidance that is available" and that it highlights the complexity of the regulatory framework.

Shares of Chorus were unchanged at $1.78, and have climbed 24 percent this year after being punished in 2013 during the height of regulatory uncertainty regarding its copper-based services.


Comments and questions

while these cardigan wearing freaks shuffle papers and claim tax payer fund as wages much of NZ has yet to see fibre or even VDSL. RBI is an even bigger joke.

The biggest joke of all is chorus which has been harpooned by government red tape and consultants with their snouts in the tax payer trough

The UFB roll-out is on track, and VDSL is available to practically everywhere where the technology could work.

Once again, Chorus reveals itself to be the true heir to the Telecom of old. This smacks of the "loyalty" offer Paul Reynolds came up with to block unbundling and further back to Theresa's 0867 numbering scheme, designed to block competition.

This is yet more proof, if proof was needed, that the Commerce Commission and in particular the Telecommunications Commissioner, is a vital part to play.

Data is data! - so why is mobile data so much more expensive than fixed data!?. The Com Com needs to extend its coverage to this too!.

They do. Mobile termination rates, colocation, roaming...all regulated by the commissioner.

I really think the problem originated with Crown Fibre to avoid the conflict of interest. They should have given the entire UFB network to them or none at all...... latter would have been best ... now the govt has paid out early on loans to keep them afloat building the UFB not because they are ahead of schedule but because they are bleeding money due to massively under estimating the cost of provisioning. I wouldn't want to be a share holder when they beg for another hand out ....

[The Ross Patterson above is not the former Telecommunications Commissioner of the same name -- Editor]

Actually Ross the decision to award WEL/Waipa Networks (UFF), Northpower (Northpower Fibre) and Enable candidate areas was a master stroke by the crown as it ensures competition and also these 3 community owned LFCs are building a fibre network in their respective communities benefiting local companies with work during the rollout and provisioning. It should also be noted that Northpower finished their build ahead of schedule and the UFF build is ahead of target and despite the challenges from the CHCH earthquake Enable are well on track.
Chorus have a huge rollout ahead of them with the major urban areas of Auckland and Wellington especially as available resource in NZ is limited.
Lets not try and find fault and blame lets encourage uptake on a network that will change the economic heartbeat of NZ

Hamish, I think Ross's point is that Chorus got sucked into bidding too low a price for the remaining UFB areas, and they and their supporters (like comment #1 above) are now trying to blame everyone else but themselves for the mess they have found themselves in! As you say, Northpower has finished already!

If one actually read the announcement in its entirety, they would have noted (conveniently put on the second to last page, and something the ComCom makes no direct mention of, in its comments on page 1 and 2) on page 10, bottom of 12 (c) (3rd paragraph), the two lawyers, the QC and the ComCom's pet lawyer Every-Palmer note:

"However (regarding VDSL being part of the UBA STD) our view does not appear to match the Comission in either: ("appear" - ha ha)
i the 16th April 2010 review/clarification decision etc etc
ii the IPP benchmarking decision (Decision [2013] NZCC 20 at [152] - [153] etc"

I've not quoted verbatim to be succinct but the 2013 IPP benchmarking decision said

"152. We consider this adjustment inappropriate (regarding Chorus request to make an adjustment to the price for the proportion of lines in NZ that are VDSL capable). We are benchmarking against the costs of an efficient operator providing the service as specified in the UBA STD. We have EXPRESSLY DETERMINED that VDSL is not a part of the regulated service where it is used to provide a higher class of service. Our view is that the VDSL services provided in the benchmark countries are UNLIKELY to reflect the forward-looking cost of providing the regulated UBA service.
153. As we are required to benchmark the UBA service, we have benchmarked against services consistent with the service description. As such, NO additional adjustment is required for VDSL."

This is HUGELY significant. In laymans terms it means one of the core basis' for the calculation of the IPP benchmark price (which helped calculate $35 per month) is incorrect. Therefore if the ComCom decides to make VDSL part of the STD, then they would have to recalculate the IPP.

Or as Chorus has said in one of their submissions "Should the Commission redefine the UBA STD in the future under a section 30R review, then it will of course need to align pricing at that time with whatever those changes are"

So if they include VDSL in UBA STD - price will need to go up.

Also remember the ComCom decision was also confirmed at the high court. So bascially these lawyers have come out with their opinion and then gone "oh BTW, it contradicts what you expressly said in 2010 AND what the IPP was based on, AND what was confirmed by the High court only a few months ago"

Lawyers, ya gotta love em - but don't worry, they'll still get their $5 hundy + an hour fee :-)