All sides unhappy with cheaper Chorus pricing

Chorus and Orcon are disgruntled with a Commerce Commission price determination - for opposite reasons. And one outraged investor warns the move could put a chill down the spine of anyone looking to invest in a New Zealand infrastructure company.

Chorus, the telecommunications network operator carved out of Telecom last year, is warning that the industry regulator's bias toward cheaper access to the ageing copper lines may discourage buy-in for the fibre network under construction.

In a draft determination, the Commerce Commission indicated it wants to reduce over two years the geographically averaged unbundled copper local loop (UCLL) service to $19.75 a month from its current price of $24.46.

The determination has upset those on both sides of the debate.

Orcon unhappy
Scott Bartlett - CEO of Orcon, one of the many retail ISPs that deals with Chorus - pointed NBR ONLINE to page 61 of the determination, in which the Commerce Commission "seems to be almost apologising for the slow glide path."

The Orcon boss is critical of the three-year timeframe for implementing the new pricing, and the determination itself says the benchmarked price of $15.82 "would never take effect" - language Mr Barlett finds remarkable.

The $19.75 price-point will serve as a disincentive for ISPs to introduce so-called unbundled service, in which they install their own gear in Telecom or Chorus exchanges (a number of large exchanges remain under Telecom control), giving them more control over servie and pricing.

”They [the Commerce Commission] have admitted the price is wrong and that it needs to come down, but then have staggered that reduction over three-years. That’s, in our view, a terrible move that I sincerely hope is removed in the final."

Mr Barlett added, "Today’s draft also fails to fix naked broadband pricing," (the pricing of a broadband connection without a bundled home phone line).

"In December the input pricing for Naked Broadband was increased by nearly 14% per month. The three-year delay before correcting input pricing back to the proper levels undermines any further pricing improvements."

For its part, Chorus said mandated lower copper pricing would inhbit customers moving to new fibre connections.

Investor outraged
One Chorus investor also struck a note of alarm.

"Chorus only just came free of a massive regulatory overhang last year when it split from Telecom and became the government's fibre partner, Aaron Bhatnagar told NBR ONLINE.

"It is outrageous that the Commerce Commission is now wading in with further intervention

"It sends a real mixed message over New Zealand's infrastructure plans. The Commission is pushing cheaper prices for the old copper wire technology that the government is trying to move us away from with their significant fibre investment," Mr Bhatnagar said.

"It is a very ominous message to those who want to invest in New Zealand infrastructure."

UCLL lets Chorus' competitors use the copper network between an exchange and an end-customer's premise to offer their own voice and broadband services.

The current urban price only has to come down $19.81, and the biggest access gains would be in non-urban areas, which are sitting at $36.63.

Chorus disappointed
Chorus says the draft decision, if ratified, would impact on about 6% of its copper-based access services, based on current volumes, and foreshadows more regulator intervention.

"Chorus is disappointed that this creates uncertainty for investors and industry," the company said.

"At a time when New Zealand is making a very significant investment in building a fibre world, Chorus is concerned that the commission's draft decision creates a potential disincentive for retail service providers and end customers to transition to fibre services."

Wholesale prices for access to the copper lines were averaged as a result of legislation enabling Telecom to carve out its Chorus unit last year, something that rankled with rival telecommunications companies, who claimed it would lift their costs.

The de-averaged urban and non-urban prices are $15.82 and $29.19 respectively, the regulator said.

At the time, Ministry of Economic Development officials downplayed concerns about the impact on copper-line prices, saying it wasn't "deemed significant" and that any increase in UCLL pricing may “have the positive impact of encouraging more investment and innovation on fibre”.

Chorus is holding an investor conference this afternoon to discuss today's announcement.

The shares fell 1.4% to $3.52 in trading yesterday. The stock has gained 20% since listing in November last year.

The regulator wants to cut the geographically averaged price after relaxing population density criteria because New Zealanders are spread more thinly than in other nations.

The commission is also consulting on whether there are grounds to investigate whether the pricing principles for the unbundled copper low frequency service (UCLFS) should be tweaked.

The UCLFS lets telecommunications companies access and connect with the low frequency in Chorus' copper local loop network, which connects an end-user's building to the handover point in the local phone exchange.

The UCLFS price is the same as that for UCLL.

The UCLFS's copper loop has been shortened by as much as the UCLL copper loop, and Chorus may "under-recover forward-looking costs" for the low frequency service, the regulator said.

With reporting by Business Desk.

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