New industry prices for access to copper network

UPDATE 1PM: Industry reaction; telecommunications commissioner Stephen Gale says he has no role in promoting fibre networks; final wholesale and draft retail pricing announced

Update 1pm

At a press conference this morning, several media including Computerworld, tried to get a comment from telecommunications commissioner Stephen Gale on the likely effect of the UCLL and potential UBA pricing decisions on the impetus for users to move to fibre, but he says the Commerce Commission did not and cannot take that into account in arriving at the determinations announced today.

Chorus has argued that lowering the price of copper will reduce the impetus for users to move to fibre. Others, such as TUANZ, have pointed out that the fibre-based Ultrafast Broadband network will not be widely available for some years yet and that much of the population will continue to depend on copper. It will work to their disadvantage to keep the price of copper artificially high.

“We have no statutory role in promoting or protecting fibre,” says Gale. “Our task in this larger project is just to fix the price of copper-based services. Retail service providers will then compete on whatever network they find most profitable.”

In its draft decision, in May, the Commission set the new geographically averaged UCLL wholesale price at $19.75. This is a greater decrease then the $23.52 per line per month now decided on – the current average being $24.46. A proposed 20 percent drop has been reduced to 3.85 percent. The draft decision reflected the Commission’s view at the time that the price for the UCLL service should be less than the network average because UCLL lines are shorter than the average.

After feedback, submissions and a conference on the topic, in September, the Commission agreed with other parties that there is “no clear evidence that shorter lines cost less”, says the Commission’s announcement, and that therefore all lines should be priced on the same basis, regardless of length. This is the approach adopted in the final decision.

“Chorus is currently reviewing and considering the potential impact of [the UCLL and draft UBA] decisions,” says the company, in a statement to the NZ Stock Exchange. “On initial review, Chorus has very serious concerns about the effect of these decisions (if the UBA decision is finalised) including:

  • the draft prices would lead to a very material revenue reduction for Chorus; and
  • copper prices would be materially lower than the UFB fibre prices, which would be expected to dramatically slow migration to UFB services.”

The Chorus share price fell following the announcement.

InternetNZ CEO Vikram Kumar sees the draft UBA decision, reducing the price by $12.53 or 58 percent, as having much more potential effect on the market than the “marginal” reduction in UCLL charges. Much of the latter will be swallowed up by inflation before the trigger date of December 1 2014, he says.

The UBA cut, if it is confirmed in a final decision, will present an opportunity for more innovation by retail service providers, Kumar says; we can expect to see “new types of bundles and products.”

He does not see any great effect on the willingness of customers to move to fibre. “That’s not driven by the comparative price of copper and fibre; it’s driven by the availability of fibre and the advantage customers see in it,” he says.

Kordia CEO Scott Bartlett has issued a statement claiming that "today's Commerce Commission UCLL decision holds the interests of Chorus ahead of New Zealand internet users. Holding the price of copper artificially high will damage investment in new technologies and new services, which in turn will see New Zealand broadband speeds languish."

"We hope that the draft decision on UBA, for implementation in December 2014, remains because it is in the best interest of the uptake of broadband in New Zealand."

The final decision on UBA pricing is due on June 1, 2013.

Original story

The wholesale price for access to the copper network owned by Chorus has been set by the regulator at $23.52 per month per line.

Currently access seekers pay two prices to put their equipment into exchanges owned by Chorus. They are referred to as Unbundled Copper Local Loop (UCLL) — an urban price of $19.75 and a non-urban price of $36.63.

Under the legislation to enact local loop unbundling, the price is due to be averaged, which would make it $24.46. ISPs such as CallPlus that have invested in LLU, argued that the average price should be lower.

In a media statement today, telecommunications commissioner Stephen Gale says that under the Telecommunications Act, the UCLL price was set benchmarking, that is by comparing prices with similar countries.

“Due to the lack of countries that have similar networks to New Zealand and similar cost conventions, it has been a difficult process to establish relevant benchmarks. We have, however, now updated our benchmarks, and conclude that the relevant costs in New Zealand are likely to have dropped since 2007. But the effect of this drop has been largely offset by inflation,” says Gale.

“That is why we have adopted a small decrease in the wholesale price relative to 2007.”

The new price comes into effect on December 1, 2014.

The UCLL decision can be found here.

New price for retail services

The Commission also released a draft decision on a new cost-based price for Chorus’ unbundled bitstream access (UBA) service.

"The proposed full UBA price is $32.45 per month per line and will come into effect on 1 December 2014. Until then, the cost of UBA will remain at the current price of $44.98 for most lines.

The full UBA service enables retail telecommunications companies to supply broadband services to households and businesses without the need to replicate Chorus' local copper lines, electronics and software.

The most significant part of the proposed full UBA price change is the reduction in the non-unbundled copper local loop (UCLL) component, which has reduced from $21.46 to $8.93 for the basic service. This is primarily because the Commission has been required to move from a ’retail-minus’ approach to a cost-based approach following the passing of the Telecommunications (TSO, Broadband, and Other Matters) Amendment Act 2011."

The UBA draft decision can be found here.

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