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Regulator sets out early view on copper network pricing model

The Commerce Commission is seeking feedback on a new paper setting out its preliminary view on what model to use when setting the regulated price on Chorus's [NZX: CNU]copper line network.

The antitrust regulator anticipates modelling a fibre-to-the-home network with fixed wireless access in remote areas to come up with the unbundled copper local loop service and use costs based on Chorus's copper-based inputs for the unbundled bitstream access service, it said in a statement. Both models will use third-party assets, such as lines companies' power poles. UCLL lets retailers rent the lines for voice and broadband services while UBA gives internet service providers access to the network company's electronic switchgear on the copper lines.

The commission is trying to develop a model to find the total service long run incremental cost (TSLRIC) for building an equivalent network, which it will then use to set a final price to regulate Chorus's copper line services after the network operator sought the more thorough process after disagreeing with the initial price set using a theoretical model.

"We have been working closely with our external advisers to formulate a set of proposals on building cost models for the telecommunications services we are pricing," Telecommunications Commissioner Stephen Gale said in a statement. "We now welcome input on our proposed approach and a number of key modelling decisions prior to assisting us with modelling the UCLL and UBA services."

Submissions are due on Aug. 6, with a draft determination expected at the start of December and a final decision in April next year.

The regulator is proposing a five-year regulatory period, and will decide on whether to backdate prices when announcing its draft determination.

The consultation comes as Chorus appeals a High Court judgment upholding the commission's determination, with a hearing in the Court of Appeal scheduled for the end of this month.

At the High Court hearing earlier this year, Chorus claimed the regulator erred in law when setting the price Chorus can charge for access to its UBA services in that it didn't have any evidential basis to narrow its inquiry and ignored a section of the legislation aiming to support the government's goal of building a nationwide fibre network.

The commission rejected the claim, arguing that the change in regulation, rather than the decision, had shocked the market.

Shares of Chorus fell 0.3 percent to $1.725.

(BusinessDesk)

Comments and questions
2

This is really terrible news for Chorus, as it does not mention the acceptable level of profit Chorus is allowed to make for the financial risk it is taking building and maintaining the network. If airports are getting 8% return, Chorus should be allowed the same.

Return on what - old obsolete copper or some fraction of the cost of building a new fibre network (which will make money from fibre sales, not copper)?