Vodafone, Orcon slam ComCom ruling on Telecom cabinets

Today, the Commerce Commission announced the price that competitors will have to pay to put their own broadband gear inside Telecom’s roadside cabinets. Vodafone and Orcon are up in arms, saying the commission has set them up to “lose money hand over fist”.

Telecom’s Chorus division is around 20% though a roll-out that will see 3600 roadside cabinets deployed nationwide by 2011 - as mandated by the telco’s obligations under the Telecommunications Act. Each cabinet serves up to 330 households.

Chorus has told NBR that each cabinet, assembled in Christchurch, costs around $145,000 to construct and connect.

Each cabinet brings fibre close from a phone exchange to your home, shortening the distance occupied by inferior copper lines. Taken together, cabinets will serve around half the market by the end of the roll-out.

Orcon and Vodafone have previously complained to NBR, bitterly, that Telecom has not left enough space inside the so-called Whisper cabinets for them to install enough of their own DSL switching gear to make their service economic - and that the Commerce Commission’s draft pricing on the rental they would have to pay Telecom Wholesale for the privilege made the costs prohibitive in any case.

Today, the commission delivered its final determination on the price Telecom can charge competitors to access its Whisper cabinets (so-called “sub-loop unbundling”; the little brother of the already established “local loop unbundling”, whereby competitors can install their own gear at Telecom’s phone exchanges).

Ten times the draft price
In a broad attack on the commission’s ruling, Vodafone says the watchdog’s final cabinet back-haul pricing is 10 times that indicated in its draft determination, and that co-location (the monthly rental for putting your own DSL gear inside a cabinet) is 50% more than the draft.

Vodafone’s General Manager Corporate Affairs, Tom Chignell, says the decision will make it almost impossible to make a business case to unbundle all but a few cabinets.

“No one is going to provide competition if it means losing money hand over fist, after paying Telecom. This is before any of our own costs such as backhaul, cabinet equipment and marketing and support costs are considered.

“An access seeker with a 10% market share of an average cabinet would pay Telecom $184 per customer per month, excluding set up costs.

“In contrast, an access seeker at an average exchange would pay Telecom around $22 per customer per month, which is almost unchanging across a range of market shares.

“The decision also cripples the wholesale market. For Vodafone to compete in the wholesale bitstream market, it would need to pay up to $184 per month to onsell a service to compete with Telecom Wholesale’s service which costs $47 per month.”

The commission’s pricing
In its determination, the commission says that the cost of co-locating gear will be decided on a cabinet-by-cabinet basis. It puts the cost of running each cabinet at $972 a month, and says that each party should pay a share of that cost based on the proportion of space it occupies.

Access to Telecom’s own gear in the sub-loop, via Telecom Wholesale, will cost other providers $11.99 per line in urban areas and $22.14 in non-urban areas.

In terms of backhaul, the commission determined that “the monthly rental to be paid by each party for sub-loop backhaul service will be calculated based on the proportion of active fibres between the telephone exchange and the roadside cabinet it is using, plus the cost of Telecom equipment at the telephone exchange. The average cost of fib re links is $1,911 per month in urban area and $3,197 per month in non urban areas.” By contrast, the commission puts the cost of active equipment a phone exchange at $430 a month.

"Competitors priced out of the game"
New Zealand broadband consumers have been let down by the Commerce Commission determination announced today, according to Orcon CEO Scott Bartlett.

“The commission has failed to protect the interests of consumers, instead opting for a pricing structure that inevitably will lead to market domination by one player.

“The commission’s decision not only prices Telecom competitors out of the game it also lacks any alternatives for continued investment in local loop unbundling, taking us back to the ‘bad old days’.

“All of the improvements in broadband price, speed and service Kiwi consumers have benefited from during the past two years have been as a result of competition brought about by unbundling. Those days may be coming to an end.

In its determination, the commission acknowledges that its cabinet costs are 26% higher than the equivalent charges for accessing a Telecom phone exchange, but that sub-loop services will offer higher value to customers. Because cabinets reduce the length of copper between a home and an exchange, broadband speeds should be faster.

However, Mr Bartlett has argued that it is faster and easier to connect a new customer to a cabinet than a tangled, aging phone exchange, so wholesale access pricing should be cheaper.

More, that given the current economic environment, customers are not of a mind to pay more for higher value services (which in Telecom’s case will include VDSL2, a turbocharged version of ADSL2+).

“With this determination, any player would need between 25% and 30% market share to engage in sub-loop unbundling. That’s about as much as the entire non-Telecom industry players combined.”

Orcon: sweetheart deals for those who don't try to unbundle
Mr Bartlett alleges that providers that haven't installed their own gear in Telecom exchanges, such as Woosh and Slingshot, have been offered sweeter wholesale deals.

“In determining prices, the commission has failed to factor in the Telecom “Loyalty” offers. These offers clearly demonstrate that Telecom’s costs aren’t as high as they say they are. Because Orcon led the unbundling of the local loop, the so-called loyalty offers have been structured in such a way as to prevent us from taking advantage of them. This is a blatant breach of the separation undertakings."

Unusually - and in a reflection of the fraught nature of the debate - Telecommunciations Users Association chief executive Ernie Newman was taciturn in his comment to NBR:

"The Comcom has had a hard job on this - cabinets and unbundling are not easy bedfellows, especially when local loop unbundling was left so late," said the Tuanz boss.

A spokesman for Telecom said the company is still digesting the ruling, and has no comment.

Telecom shares (NZX: TEL) ended the day up nine cents.