Why the Commerce Commission should use credible NZ data

“It is our view that the Commission still needs to do more to take credible New Zealand costs into account where that information clearly exists."

Chorus has called on the Commerce Commission to more clearly ground its work on the FPP in credible New Zealand costs when it delivers its final determination.

The telco has provided a further submission in the long running FPP process, which outlines some key areas where the Commission appears to have “deviated significantly” from New Zealand reality.

“While we recognise that the Commission has taken on board several points of accuracy from the last round of submissions, some key parameters in the model have been adjusted materially downwards, meaning the overall effect was for the monthly charge to remain broadly the same,” says Vanessa Oakley, General Counsel, Chorus.

“It is our view that the Commission still needs to do more to take credible New Zealand costs into account where that information clearly exists.

“If the Commission doesn’t do this then it is sending a strongly negative signal to domestic and international investors who would otherwise enable improvement and innovation in network industries throughout New Zealand.”

In particular, Oakley says the critical parameter of how much it costs to dig trenches in New Zealand has been “drastically reduced” in their hypothetical model.

“Chorus is currently building a new fibre network, and has tendered competitively for this work,” he adds.

“As such we have genuine, tested in market, up-to-the-minute, accurate information. The hypothetical trenching rate used by the Commission in its model is less than half of the true cost.”

As a result, Oakley says Chorus has also outlined that its one-off transaction costs, such as the cost to connect a new customer, are also based off competitively-tendered pricing, which ensures they are based on New Zealand reality.

“The Commission has applied an across the board 30 percent reduction to transaction costs, however we again have credible, up-to-the-minute, competitive costings that could be applied,” she adds.

Oakley says that Chorus has also argued that there is a strong legal precedent for backdating the more accurate price indicated by the current FPP draft determinations.

“The Commission’s own previously held view on backdating was that it should be applied, and it argued as such in the Court of Appeal,” he adds.

“Putting aside the basic issue of fairness, and the need to correct pricing that has been accepted as incorrect, adopting a different position on this matter serves to highlight just how hard it can be to predict the decisions the Commission is going to make, which is very likely to discourage investment over the longer term.”

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