Chorus calls for FPP processes to be grounded in NZ reality

If the FPP does not deliver a balanced outcome, there will be little room for Chorus to recover its costs elsewhere and continue to invest, according to its CEO.

Chorus has stated that the Final Pricing Principle (FPP) processes should ensure that the regulated price for broadband services is grounded in the reality of New Zealand’s circumstances.

Under the Telecommunications Act, the aim of the FPP is to deliver regulated prices that reflect the costs to efficiently deliver regulated broadband services in New Zealand, as well as encouraging future investment.

Chorus has submitted, in response to the Commerce Commission’s (ComCom), request for feedback from industry participants on its initial view of how it plans to undertake the modelling required to deliver the FPP.

In modelling the network ComCom is seeking to calculate the cost to someone of entering the market today and building a new efficient network, while taking on 100 per cent of the demand. The Commission takes a range of inputs into its calculations but will also make some of its own choices as to how a hypothetical network would be built.

“While we acknowledge that the Commerce Commission has some flexibility when choosing how to model the hypothetical network, we think it is important that the choices they make accurately reflect the realities of building and operating a network in New Zealand. This is consistent with modelling undertaken by regulators around the world,” said Mark Ratcliffe, Chorus CEO.

“For example, the hypothetical network should not overestimate the amount of the network that could realistically be built overhead, given council by-laws, the Resource Management Act and other constraints.

“Also, if the hypothetical network is going to be modelled using a technology other than copper, any modelling should cost-in the functionality that ensures the same services that end-users expect today, including burglar alarms, SkyTV services and medical alarms, can be delivered.

“Chorus is a structurally separated wholesale only infrastructure provider, with around 80 per cent of its revenues coming from regulated services and a significant upgrade investment underway until 2020. In this context, there is little room for Chorus to recover its costs elsewhere and continue to invest if the FPP does not deliver a balanced outcome.

“To ensure that the timetable stays on track, we are also encouraging the Commission to engage the industry on other issues, such as installation fees, prior to the draft determination.”

Read more: Telecom calls for national consistency from fibre companies

Chorus has also made a submission about a predictable backdating policy and will explore commercial repayment options with its customers to inform ComCom’s process.

Chorus stated that it will be releasing its own modelling data on its costs later this year.

“FPP outcomes are expected to deliver a higher aggregate copper broadband monthly price than the benchmarked price of $34.44. Within that aggregate price we also expect the local loop services to increase in price. A sustainable FPP outcome will give certainty to all industry participants through to 2020, when a new regulatory regime is expected to come into effect,” said Ratcliffe.

Chorus’ submission is available here.

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