Telco bill: Chorus told to stick to its knitting

Chorus chief executive Kate McKenzie says the bill's anchor product provision is unfairly restrictive.

Neither Chorus nor retail telcos appear to have got the upper hand as the Telecommunications Amendment Bill emerges from a parliamentary committee.

Both Chorus and Spark shares stayed flat after the economic development, science and Innovation committee delivered its report this morning.

All parties are still in the process of decoding the report's 80 pages of dense regulatory-speak, and most have only been willing to make brief comments at this point.

However, at first blush, it appears the committee is recommending no significant alternations to the legislation, which had its first reading under the National-led government.

Its centrepiece – treating Chorus like a utility, complete with a regulated revenue cap a la lines company Vector – remains.

A senior manager at one retail telco – who did not want to be named – said the general industry feeling was that retailers have done better out of the revamp of the bill than Chorus, which has had its ambitions to move into new markets crimped.

But it's a close-run thing. The MP in charge of the bill, Communications Minister Clare Curran, has not stamped major changes on the legislation shepherded into the house by Simon Bridges.

'No' to regulated unbundled fibre 
Spark pushed hard in submissions for unbundled fibre — or the ability for retail telcos to get layer one access to Chorus fibre to give them more control over pricing, performance and features (the counter-argument was that regulated unbundling would favour the larger telcos who could afford to move their own gear into Chorus exchanges).

Vodafone went a step further, saying the Commerce Commission should set pricing for unbundled fibre.

Chorus wanted none.

The report essentially goes with Spark's line of thinking.

“While Vodafone acknowledges the committee has included a recommendation to keep fibre unbundling included in the legislation, we are concerned this doesn’t include a recommendation to have prices set independently by the Commerce Commission," Vodafone NZ chief executive Russell Stanners says.

“Leaving unbundling pricing in the hands of Chorus and local fibre companies will prevent unbundling becoming a commercial reality, as was the experience with copper unbundling. This is a missed opportunity to accelerate innovation and competition for the benefit of New Zealanders."

Chorus to stick to its knitting
From the other side, Chorus had been pushing for more control over residential connections, including the ability to install its own modem and wi-fi router, which it submitted would make it easy to install fibre, and easier for consumers to switch between retail ISPs. It didn’t get its wish, either.

Instead, the committee decided Chorus should stick to its knitting and shot down its bid to get into new lines of business.

That bodes darkly for Chorus' push to build a single 5G mobile network to be shared by retailers.

"It’s good to see the committee recognised that the previous version of the bill wasn’t going to work. It would have given Chorus not just the ability but also the incentive to tinker in competitive markets," 2degrees head of corporate affairs and wholesale Mat Bolland tells NBR.

He adds, "The improvements in mobile market competition [in recent years] have been driven by private investment, so it’s encouraging to see a strong signal that publicly financed fibre companies should focus on their core business."

Vodafone's Mr Stanners strikes a similar tone, saying, "We are especially pleased the committee has listened to the concerns we raised over relaxing line of business restrictions on Chorus."

So does Vocus NZ chief executive Mark Callander, who says, "The attempt to remove the lines-of-business restriction for Chorus has been addressed and kicked out. This would have unfairly enabled Chorus to use its monopoly position in the wider fixed wholesale market creating significant market distortions along the way."

There is a kicker, however. InternetNZ chief executive Jordan Carter notes that while the line-of-business restrictions on Chorus will remain in place, "The Commerce Commission the power to grant exemptions on a case by case basis has been adopted by the committee." Mr Carter sees that as a good thing.

Wider watchdog powers
InternetNZ and Tuanz do seem to have got their wish for wider Commerce Commission powers. The report recommends more oversight for the regulator in the landline markets and new rapid reaction provisions for the mobile market.

The bill could now see copper ripped out in UFB fibre areas from 2020. The provision should not be too controversial given high fibre uptake over the past 18 months, and the fact the bill already gave Chorus the power to set whatever price it liked for copper lines post-2019 in areas where UFB fibre is available (presumably, Chorus will not set it at an attractive level; it can make more margin on copper lines but, as the number of users on copper plunges, the economics of maintaining two networks becomes a lot less attractive).

Controversial 100/20 anchor product remains
The bill also maintains the provision for a regulated “anchor” UFB fibre product – seen as the most popular fibre service that would set the pricing tone for others.

In submissions, the legislation drew criticism from parties on all sides for prescribing an anchor product of 100/20 (that is, a fibre plan with 100 megabit/sec download speed and 20Mbps upload).

InternetNZ said that was too slow at a time when ISPs are already selling 200Mbps and 1Gbps (1000Mbps) plans.

Today, its chief executive Mr Carter called the decision to stay at 100/20 a "missed opportunity." His organisation will continue to lobby for an increase.

Telecommunications Users Association chief executive Craig Young submitted that the legislation should not try to guess what product will be mainstream in 2020. Rather, it should allow the Commerce Commission to set it at the time.

Chorus chief executive Kate McKenzie warns, “The report signals an intention to set anchor service pricing based on a price path signalled in 2014 for Chorus’ commercial 100/20 Mbps fibre product. This unfairly restricts our ability to recover costs and would require us to price below local fibre companies.”

Vocus' Mr Callander says while his company is disappointed the anchor product has stayed at 100/20, he sees the report as thwarting what he calls a Chorus attempt to game the system by raising wholesale pricing on 100/20 plans ahead of the bill's implementation.

"We are pleased to see the government's prepared to step in and proactively prevent Chorus from breaking its promises with respect to what it charges its customers for the service," he says.

Still assessing impact
All sides continue to digest the report.

“The bill directs the Commerce Commission to consider actual financing costs incurred when considering the value of our assets,” Chorus notes in a statement.

“The principal amount of the debt/equity investment would remain reflected in the value of assets in the asset base. We will be reviewing the detail of the provisions carefully to ensure they reflect the intent of our infrastructure partnership with the Crown.”

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