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Regulator seeks industry views on Chorus line price, suggests speedier process, backdating final price

The Commerce Commission is consulting with the telecommunications industry over what price Chorus can charge rivals to access its copper telephone lines, suggesting a review process could be accelerated and the final price backdated.

The Commerce Commission is reviewing the price by building a full cost model on Chorus's unbundled local loop, which lets retailers rent the lines for voice and broadband services. That differs from the unbundled bitstream access services, currently in dispute, which lets retailers use Chorus's software and electronics to supply broadband services without having to build their own.

The process is complex and can take years and the regulator is seeking industry views on whether a shorter process may be desirable even if it involves trade-offs, regulation manager John Hamill said in a statement.

The regulator is also seeking views on whether it should backdate the final price, which is favoured by the Court of Appeal.

The Commission is holding an informal industry workshop this month to work through some of the key issues, it said.

Chorus sought the final pricing principle after the regulator set the geographically averaged price at $23.52 per month per line. The change was the result of the regulator adopting a new methodology to set the prices after Chorus was spun out of Telecom in 2011.

(BusinessDesk)


RAW DATA: Commerce Commission releases consultation document for reviewing the price of Chorus’ Unbundled Copper Local Loop Service

The Commerce Commission has today released a consultation document for the Final Pricing Principle (FPP) of Chorus’ Unbundled Copper Local Loop (UCLL) Service.

This paper seeks views on the process that the Commission should take, as well as some of the key issues to address in setting the final price for the UCLL Service using the TSLRIC methodology. The UCLL service enables telecommunications providers to rent Chorus’ copper telephone lines to provide voice and broadband services to consumers.

The Commission received applications to review the price in accordance with the FPP from Chorus NZ Ltd, Telecom NZ Ltd, Callplus Ltd, Kordia Ltd and Vodafone NZ Ltd. It is now a requirement under the Telecommunications Act 2001 to review the price of the UCLL Service by building a full cost model.

“We are interested in views about the timetable for this process,” said Commerce Commission Regulation Manager John Hamill.

“International experience suggests that the TSLRIC modelling process can take some years. Building a TSLRIC model is a complex task and we are aware that there are likely to be a wide range of views on the most appropriate way to apply the methodology,” said Mr Hamill.

“However, we are interested in whether there are circumstances in New Zealand in which a shorter process might be feasible or desirable. This suggests that submitters should consider the trade-offs that may be involved in a shorter process.”

Another issue the Commission is seeking feedback on is the possible backdating of the reviewed price on completion of the process.

“The Court of Appeal’s observations favour backdating,” said Mr Hamill.

“However we are aware that this may have a significant impact on parties depending on the outcome of this review.”

The Commission is also interested in the technical issues around TSLRIC modelling and because of the complexity the Commission will be holding an informal industry workshop in mid-December to work through some of the key issues highlighted in the discussion document.

The Commission received an application from Chorus on Monday 2 December for a Final Pricing Review of the UBA Service. The Commission intends to issue a process and issues paper on the IBA FPP early next year. However the Commission has asked for views on how the UBA FPP impacts on this process.

Background

The Telecommunications Act (Act) requires the Commission to determine a price for the UCLL service. In the first instance the Commission benchmarks prices against comparable countries under the Initial Pricing Principle (IPP).

In 2012, the Commission conducted a UCLL benchmarking review. The purpose of the UCLL benchmarking review was to update the benchmarking data in order to determine UCLL monthly rental and connection charges. Our 3 December 2012 final price determination for the UCLL service:

  • determined the new geographically averaged price for UCLL as $23.52 per line per month, with the new price to come in effect on 1 December 2014; and

  • updated urban and non-urban UCLL, with monthly rental prices of $19.08 and $35.20 respectively, with the prices coming in effect immediately (that is, from 3 December 2012).

    If a party is not satisfied with the results of the Initial Pricing Principle it has a right under the Act to ask the Commission to review the price by building a full cost model using the TSLRIC methodology as detailed in the FPP. The Commission received applications to review the price in accordance with FPP from Chorus NZ Ltd, Telecom NZ Ltd, Callplus Ltd, Kordia Ltd and Vodafone NZ Ltd. 

 

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Comments and questions
4

What a laugh. This is like asking an alcoholic what the price of booze should be. This regulator is out of his depth and out of control. Not content with destroying hundreds of millions of dollars on investors funds through his mad cap graven groveling to the self interested retailers.

The Commerce Commission have totally cocked up.

Under the Telecommunications Act 2001, they are legally required to set a price that doesn't deter investment in major capital upgrades.

Not only have they deterred investment, in breach of their legal requirements - they have set a price so low that there's been a flood of investment leaving not only the telecom market, but also every other market that the Commerce Commission could cock up.

And now it's spread to analysts both overseas and in NZ cautioning against ANY current investment in NZ while the Commerce Commission can make rogue decisions..

A quick read of the Commerce Commission's proposal and it's clear for all to see that they have made a major stuff-up, and now appear to be trying to fiind a way to backtrack. And so they should. Comcom made an unforgiveable mistake with their pricing methodology, and the damage to this country's financial reputation is immense. The actions of Paul Brislen and his fellow-travellers make things worse.

On top of this we have the Labour/Greens proposal to dismantle the competitive model for power pricing, just crazy. Pure populism which has already caused immense harm, not that I expect them to understand that.

New Zealand needs secure capital markets without the damage caused by regulatory and political risk. Our reputation as a viable investment destination has been damaged, and this carries significant cost to the whole economy.

The Commerce Commission is conducting a Final Pricing Principle review of both UBA and UCLL decisions.

It was asked to do so by Chorus.

It hasn't decided to "oops" fix up a mistake as the first comments seem to be suggesting.

The idea that section 18 of the Act legally requires the Commission to "set a price that doesn't deter investment in major capital upgrades" is also misleading. That might be the intention, but it's not well written and doesn't give the Commission any particular power to ignore the rest of the Act or guidance on what to do in case of a conflict, as we have between copper and fibre programmes.