PING

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Copper price regulation and its impact on the UFB

 

The current debate between the government, Chorus and the Commerce Commission has been a hot topic in the news. But what exactly has been happening, and how could it affect the UFB FTTH deployment?

 

About a month ago, the Commerce Commission (the independent telecom regulator in New Zealand) announced to reduce the wholesale prices for copper drastically, making it cheaper for internet service providers to buy access to the copper DSL network of Chorus. Chorus however reacted that this reduction, which would take effect from December 2014 onwards, would compromise its ability to commit to their contract of deploying 70% of the UFB network. As such, rumours said that the government would intervene and overrule the regulator's decision to ensure the deployment would continue as planned.

 

Advocates of the government intervention reason that:

• If copper prices are low, relatively to fibre prices, the incentives of consumers to move to the fibre network will be reduced, undermining the UFB network business case;

• Fixing the copper price during the UFB deployment (until 2020) will reduce uncertainty for RSPs;

• Copper network returns must be fair to Chorus

 

Opponents of the government intervention argue that:

• Keeping copper prices arbitrarily high puts an extra tax ($600 million) on broadband customers (welfare for corporates), as they are paying more than is actually needed to sustain the copper network;

• Keeping copper pricing high would push customers towards UFB adoption, but argues that this is the wrong motivation (carrot VS stick approach);

• Intervention would weaken competition and as such “suppress demand for internet services”.

 

This week, Chorus decided to take Commerce Commission's decision to court, and requested a revision of the price decision, one woudl use the cost-based Final Pricing Principle (FPP), rather than the benchmarking model currently applied. Although this is a fair request from Chorus's side, it might delay market and competition evolution on the RSP market, as they will postpone strategic decisions until certainty about copper wholesale pricing is reached.

 

Only time will tell...