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Hey Mr Orcon and Mr CallPlus - will you actually pass on any regulated Chorus price cuts?

UPDATE: CallPlus CEO Mark Callander has sharpened his orignal comments to NBR ONLINE - and also sounded a warning about his company's budget braand, Flip.

He was asked if his ISP would pass on any cuts to Chorus' wholesale pricing.

"The one thing that is guaranteed is if the $600 million is given to Chorus, consumers will see no benefit at all," Mr Callander says.

"However, it seems the public want a straight answer on whether ISPs will pass on the savings, so the answer from CallPlus and Slingshot is yes.

"If the government doesn't proceed with the proposed copper tax and Chorus doesn't find other ways to increase our wholesale prices, CallPlus and Slingshot will pass on the full benefits to our customers."

Flip under threat
Mr Callander adds, "With regard to our new residential brand recently launched, Flip, the lower costs have already been factored into the pricing and the focus has been growing market share, not profits.  With Flip, a homeline and broadband bundle is priced at just $55 a month and it is unlikely that this pricing will be sustainable under the government’s proposal."

EARLIER: NBR ONLINE is curious about one element of the Fair Internet Pricing Coalition's push for the government to drop it's so-called 'copper tax'.

If ICT Minister Amy Adams relents, and reverts to the Commerce Commission's original, much steeper recommended cuts to Chorus' wholesale home line pricing, would retail ISPs pass on the savings?

Or would they pocket all or some of the $150 a year? Or keep pricing the same but, say, offer customers bigger data caps?

Two major ISPs belong to the Coalition - Orcon, and Callplus (which includes the Slingshot and Flip brands).

NBR asked bosses at both if they would pledge to pass on any wholesale price cuts in full. 

In a phone interview with NBR, just before the Coalition's midday launch event, Orcon CEO Greg McAlister said, "Orcon will bring cheaper internet to New Zealand if the regulator is left alone to do their job."

So it will pass on 100% of any wholesale price cuts?

It's complicated, Mr McAlister said.

There's averaging between rural and urban pricing going on. "There are parts like UCLL where it's going up, and parts like UBA [unbundled bitstream access] where it's going down."

He summarised that "Orcon will definitey pass on cheaper inputs."

UBA, or unbundled bitstream access, is broadband over copper. UCLL, or unbundled local loop, is where an ISP has moved its own DSL gear into a Telecom exchange (outside of the largest metro exchanges, most are now controlled by Chorus).

CallPlus boss also sees shades of grey
CallPlus' CEO Mark Callandar did not respond with a yes or no* to NBR's question about whether his company would pass on 100% of any cuts but did offer, "Quite simply the price of broadband will be lower and the quality of broadband will improve if the Chorus wholesale costs reduce to the draft price determined by the Commerce Commission. 

"Under this scenario, the consumers will be the big winners as opposed to Chorus shareholders who will benefit by about $100 million a year based on the Governments intervention. Lower input costs will result in lower prices and better value for consumers than they get today."

"I can pledge to lower prices and better broadband services based on the lower input costs for our business from Chorus, but we are also facing price increases from Chorus for Urban LLU - this is not a one dimensional issue given the size [$10 million] of our LLU investment." (Local loop unbundling is when an ISP moves its own broadband switching gear into an exchanged owned by Telecom or Chorus.)

Mr Callander added, "The alternative to consider is the additional $600 million that Chorus will get does not result in a larger fibre network. It does not result in a quicker build of the fibre network and it does not result in a faster fibre network There is absolutely no benefit to NZ consumers or businesses, just Chorus shareholders."

No uncertainty
Mr McAlister also had words for ICT Minister Amy Adams, who says the market faced uncertainty during an extended Commerce Commission price-determining exercise.

"She’s reducing uncertainty in the market. I don’t see any uncertainty, he told NBR.

"Chorus and the other LFCs have entered into contracts with the government to build something. There’s no uncertainty about that."

Chorus should build the UFB at the originally agreed price, not subsidise the build by pressuring the government to minimise copper line price cuts, the Coalition maintains.

The one area of true uncertainly is demand for fibre, Mr McAlistair said. Only 3% of those with the chance to connect to fibre are signing onto a plan.

"The government needs to address that true uncertainy and help create demand for fibre, not prop up Chorus with this copper tax."

More by Chris Keall

Comments and questions

Orcon will pocket the difference, or construct a public offering where they get more for less, as you have pointed out.

you should ask them whether retail prices should be regulated if steep cuts to the wholesale price are brought in, so that consumers get every cent from the intervention.

They may or may not. The point is that Chorus almost certainly won't - it's a monopoly with no competition. Orcon is under the cosh of stiff competition and will do whatever it takes to stay in business. Lots on incentive on one side of the market and none on the other.

If the recommendations are not followed, it just puts money into Choruses pocket - plain and simple. It does not encourage competition.
That is the whole idea of regulation - to encourage competition for the benefit of consumers.
Come on Amy Adams - stop pandering to Chorus and start using some common sense. Or do you own a large chunk of shares in Chorus? [In point of fact, yes, 50% of the Crown's $929 million investment in Chorus is in the form of non-voting shares. The Crown will sell down its stake once the UFB rollout is complete - CK]

Mr Brislen himself is on the record as saying it's irrelevant what the wholesale price is, as the likes of Orcon will just pocket it: "I don't think consumers will notice any difference in terms of pricing, I think what'll happen is this is a wholesale price that she's [Adams] talking about; the retail ISPs will soak that up." See:

Stop your moaning. The shareholder's gotta milk the company and its customers!!

Chorus, the privately owned business, in profit-making scandal!!

Really really don't know what the issue here is. This is classic tender tactics. It happens in trade all the time:

Party-A: You should sell this service at $8 per unit
Party-B: But I want to sell it at $24 per unit
Party-A: okay, here beginneth the negotiations ...

The only problem that we are seeing here is, some jumped up twirp has tweeted about it, starting a whirlwind chorus-bashing campaign on a topic that is so ill-informed it's not funny. Nothing has been signed yet, nothing has been decided, everything is currently in DRAFT status ... yet the naysayers are on the typical bash-Chorus bandwagon.

Notice how nobody jumps up and down at the fact that the CEOs of both Orcon and Callplus avoid the question of them reducing broadband retail prices if the wholesale price goes down?

CallPlus and Slingshot will pass on the savings to our customers.

Lets analyse the worse "Lower Price or Better Broadband"...

Lower Price: $1 reduction can still be considered as lower price. So at what level is the price lowered to?

Better Broadband: There are additional add-on products to enhance broadband experience such as higher speed, increased data caps, QOS, etc... all these are available at a higher price. So if the RSP provides such services instead of lowering price, doesn't it mean that they are forcing the end users to be purchasing such products even if it is not required? Yes, better broadband but it is not given free.