Spark, Vodafone, CallPlus flag price increases, blaming regulator's Chorus decision

UPDATED: Tuanz not convinced Big Three's price rises are warranted. Spark shares jump.

UPDATE: Vodafone and CallPlus will follow Spark and increase their broadband and home line pricing.

The Big Three broadband and voice providers, which between them hold around 95% of the retail landline market, all cite a draft regulatory decision on Chorus wholesale pricing (see below).

Vodafone has not been as specific as its rival but after NBR prompting, head of external relations Craig Jones tells NBR, “Our broadband pricing had already factored in a drop in copper pricing from December 1.  The Commission’s proposed pricing will increase the costs faced by our business, in addition to unfairly penalising the significant investment Vodafone has made in LLU [local loop unbundling] infrastructure by expanding our own fixed network across New Zealand.

“With input costs going up, we have no choice but to recover the increase in costs through our retail pricing. We are currently working through this, and will communicate our decision to customers soon.”

NBR also asked CallPlus Group CEO Mark Callander about his company's plans.

"We are still working through our pricing review, but yes retail prices will increase," he said.

"Over the last twelve months there has been a significant drop in our retail pricing along with an increase in the amount of data provided to our customers.  For example, Slingshot’s unlimited broadband plan dropped from $109 to $89 and Slingshot’s unlimited Naked plan dropped from $90 a month to $75. These pricing movements were driven by the lower prices that were expected as part of the regulatory process and the goal posts have moved."

However, Telecommunications Users Association CEO Craig Young is skeptical about the Big Three's move to raise rates.

"Tuanz is not convinced that the move is warranted as we are unconvinced that the full IPP reduction [of $10] had been competed out of the retail price," he tells NBR.

That's a diplomatic way of phrasing the Chorus supporters' arguement that retailers are inclined to pocket wholesale price cuts rather than pass them on to customers, or at least pass them on in full.

Mr Young says the Big Three's price rises could create opportunities for smaller ISPs. A catch, however, is that many Spark, Vodafone and CallPlus customers will face still break fees from a 12 or 24-month contract.

Spark shares [NZX: SPKclosed up 3.63%.

As CEO Home, Mobile and Business Chris Quin put it at a company Christmas event last week, "We have to work out what we do about it now without passing too much on to our customers but also being fair to our shareholders in what we do from here." 

EARLIER: Spark has followed through on last week's hints it would have to raise pricing.

The cost of most of the company's plans is increasing $4 a month (although one unlimited plan sees a $10 price reduction; at least for those in Auckland, Wellngton and Christchurch. See table below. The increases apply from Feb 1).

Now all eyes will be on the other big ISP/telco players, Vodafone and CallPlus, to see if they follow (Spark holds around 50% of the retail market according to the latest Commerce Commission figures; Vodafone around 32% and CallPlus -- including its Slingshot and Orcon sub-brands -- around 13%). Neither immediately responded to NBR's queries.

Spark's move follows a controversial Commerce Commission review of its own initial determination to cut Chorus copper line wholesale line pricing. The regulator moderated its earlier decision to lop $10 off the combo of copper line services used by most customers, instead only cutting them by $4.

Chorus [NZX:CNU] shares surged as the company said it would now only take an $80 million a year earnings hit, rather than the $170 million it based its forecasts on.

Spark said the decision added $60 million to its annual costs. The $10 wholesale price cut was already baked into its retail pricing, and its forecast for a single digit earnings increase in 2015 (which has now been suspended). Its stock sagged.

The commission's Final Pricing Principles (FPP) review of its own Initial Pricing Principles (IPP) decision is a draft only. Its final final pricing will be decided in April next year. No decision has been made on whether the price point decided in April will be backdated to December 1, when the IPP pricing kicked in. Expect more bunfighting ahead and, for a while at least, more expensive broadband for most.

InternetNZ has criticised the Commission for causing uncertainty in the market. I have to agree. There would be less commercial arm-wrestling and politicking (and perhaps bill changes) if it was clear whether the final price in April will be back-dated.

RAW DATA: Spark statement

Spark changes pricing to reflect Chorus wholesale copper line costs

Spark said today it will change the price of selected homephone and broadband plans from 1 February 2015, following last week’s Commerce Commission draft decision on the amount that Chorus can charge Spark and other Retail Service Providers (RSPs) for access to the Chorus copper wholesale network.

Last week’s draft decision signalled:

  • A $5.40 increase (incl.GST) in the wholesale charges for homephone lines that have been in place for the past two years; and
  • A $4.54 increase (incl. GST) in the broadband lines charges that took effect on 1 December, 2014

Chorus has argued that an increase in charges to Spark and other RSPs must be backdated, and the Commerce Commission has yet to give a view on this matter.

Spark price changes from 1 February, 2015

The price of Spark’s homephone-only plans and the 40GB and 80GB broadband plans (ADSL and VDSL, excluding Ultra Fibre plans) will go up by between $2.50 and $4.25 a month from 1 February 2015.  A summary of key price changes is in the table below. There will be similar increases in the price of business copper broadband plans, with full details available   

While these increases will affect lower-end plans, Spark will continue delivering more value to its customers by lowering the price of Unlimited Broadband Data and homephone packages  – also from 1 February.

These price changes affect Spark Home, Mobile and Business services.  Spark Digital will be contacting its medium-to-large business and government customers to discuss any increases for Spark Digital services.

Spark Home, Mobile and Business Chief Executive Chris Quin said: “Over the past two years we have been competing hard in the broadband market on the basis that there would be a $10 reduction in the monthly charge we pay Chorus for providing copper broadband access.

“Market competition has brought great value for customers and the expected wholesale cost reduction for Spark and other ISPs has been built into current broadband prices. For example, Spark’s basic $75 broadband package today would have cost customers $105 two years ago.

“Now it’s indicated that wholesale broadband access charges will go down by almost $5, rather than $10, and homephone access changes will go up by more than $5.  We understand this is how the process works, but we do have to react accordingly.

Mr Quin said the monthly price increases of between $2.50 and $4.25 meant that Spark would only partially recover increases in wholesale charges.

He acknowledged that the Commission’s decision on the new charges was a draft and was unlikely to be finalised until sometime next year.  However, he noted that Chorus was arguing for the new wholesale charges to be backdated. 

“Given this negative uncertainty, Spark has no choice but to change its prices now,” Mr Quin said.

“If the Commerce Commission confirms these charges and decides to backdate its final decision, then the price increases we’re announcing today will not  fully cover our increased wholesale costs.  Once we have a clearer view on the final decision on wholesale charges and whether these charges will be backdated, we will review the situation – and we will do the right thing by our customers.”

Unlimited Broadband Data price reduction, traffic management clause removed

Mr Quin said Spark was also taking this opportunity to simplify and streamline its broadband plans – and to continue delivering more value to its customers.  From 1 February, Spark will drop the price of its Unlimited Broadband Data and homephone packages by $10,1 and remove the sale of the 150GB and 500GB data plans to new customers (since these would be priced on par with or above the Unlimited plan).

“The Unlimited data plans have been a great success and we want to make them even more attractive to customers. As we haven’t yet used traffic management on this plan, and will not be doing so in the near future, we have also decided to remove the traffic management policy from the Unlimited Broadband Data plans,” Mr Quin said.

Login in or Register to view & post comments