Chorus tries to pass on cost of rural telco levy

Commerce Commission considering request by Chorus to include cost of levy in copper pricing

Chorus is making a last ditch effort to pass on its contribution to the Telecommunications Development Levy (TDL), which will be used to pay for the Rural Broadband Initiative.

In its submission to the Commerce Commission’s draft TDL liability allocation determination on June 5, Chorus makes a final plea.

“As we have noted earlier in the TDL process, it is appropriate that Chorus should be able to recover the costs of the TDL in the same way as other liable persons, including through the Chorus prices,” writes Anna Moodie, assistant general counsel for Chorus.

“We note that the current prices do not account for pass through of the TDL, and we request that this be considered as a matter of priority.”

Under the draft determination, Chorus’s liability allocation for the period July 1, 2011 to June 30, 2012 is $6.4 million. This is 12.8 percent of the total levy of $50 million for that year, which is shared out amongst telco companies and calculated according to net revenue.

The biggest payers under the draft determination are Telecom, at $25.36 million and Vodafone at $10.98 million. However, Chorus claims that those companies will be able to pass on the cost to their customers, but because around 80 percent of Chorus’s prices are regulated, it is not able to.

“We feel that there should be a level playing field for all participants,” a Chorus spokesperson told Computerworld.

Chorus is asking the Commission to consider its contribution to the TDL when setting new prices for the copper network.

Chorus had originally tried to avoid paying the levy, when the process was begun more than a year ago, by claiming it should not be liable to pay in the first year because it had not been trading during the previous financial year. It had instead been a division of Telecom prior to structural separation.

Telecommunications commissioner Stephen Gale was scheduled to hear Chorus’s arguments about the TDL at a conference on copper pricing last week. On the eve of that conference he spoke to Computerworld and said that calculating liability based on net revenue – as opposed to retail revenue – is the method that was used for the Telecommunications Service Obligation, the forerunner to the TDL.

“The main reason for doing this is that it avoids collecting the levy twice,” says Gale. In other words, a wholesale provider could pass on the cost of the levy to a retail provider, who would then have to absorb that cost, as well as pay a separate contribution to the Commission.

Gale also pointed out that Chorus would have known about the TDL during discussions around how Telecom was to be structurally separated and how the copper network pricing would be regulated.

“They knew about the levy when they had discussion with government about prices they charge in the future,” he says. “The levy has been known about for some time.”

The Commission’s conference in Wellington last week concerned the Unbundled Bitstream Access and Gale expected up to 40 lawyers and economists representing individual telcos to be present.

The UBA pricing review is taking place alongside two separate reviews ordered by ICT Minister Amy Adams – a review into telco regulation and another into the future of the TSO. Discussion papers on Adams’ reviews are expected to be released in July.

Meanwhile, the TDL will continue to be $50 million a year until 2016, when it will be reduced to $10 million a year.

The Rural Broadband Initiative is expected to be complete by this time. Chorus and Vodafone have been awarded the contract to build the $300 million broadband infrastructure.

The Commission’s final decision on the TDL liability allocation determination is due June 28.

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