Wins and losses in proposed changes to telco bill

Parliamentary committee reports back on Telecommunications (New Regulatory Framework) Amendment Bill

Chorus scored an early resolution on removing copper lines but failed in its bid to move up the value chain, in a report by the parliamentary committee reviewing the Telecommunications (New Regulatory Framework) Amendment Bill.

The Economic Development, Science and Innovation Committee, after considering 257 submissions and hearing from 31 submitters, has released its recommendations on changes to the Bill that seeks to provide legislative certainty on the regulation of fibre networks from 2020. Chief among its findings is that separation between companies that wholesale fibre services and those that retail the services will remain. The Bill, in its original form, could have seen restrictions lifted to enable Chorus to link “its wholesale service inputs together to provide an end-to-end service which resembles a retail product.”

The committee recommends retaining the existing line of business restrictions but giving the Commerce Commission “the ability to provide exemptions for particular services on a case-by-case basis after the first regulatory period.”

While Chorus has had its aspirations of moving beyond being a wholesale player curbed, the committee recommends that in areas where fibre networks are available, deregulation of the copper network – and even its removal – could take place from 1 January 2020. Although this can be delayed if the Commerce Commission requests it, by up to two years.

Chorus posted a response to the committee’s report on the NZX, endorsing the deregulation of copper fixed line access from 2020 in areas where fibre is available and the introduction of a new utility regulation framework.

It did however sound a warning about the Committee’s recommendation to set an anchor product of 100Mbps download and 20Mbps upload, based on a price path signalled in 2014. Chorus CEO Kate McKenzie says: “This unfairly restricts our ability to recover costs and would require us to price below Local Fibre Companies (LFCs).” (The LFCs – Enable in Christchurch, Northpower in Whangarei and WEL Networks in the central North Island – are responsible for the remaining 30% of the Ultra Fast Broadband build.)

The Committee also notes that the Bill doesn’t provide specific guidance on how to treat the Government’s UFB investment when considering the value of assets. “We consider it reasonable that asset valuations should give UFB providers the opportunity to recover, through future revenue or prices, the actual financing costs they have incurred. However, we emphasise that recovery should be limited to actual costs. That is, the Commission should take into account the concessional element and should not assume that commercial funding rates were applied to the whole of the asset base,” the report says.

When the original agreement was signed in May 2011, the then Communications Minister Steven Joyce estimated that the total cost of the UFB build was likely to be around $3.5 billion; of that $1.3 billion was a taxpayer contribution, although this was expected to be paid back to the government over time. The Government was to fund Chorus directly up to $929 million and this funding was to be a 50/50 split of debt and equity, which was expected to be repaid over 15-25 years. In contrast, the Local Fibre Companies were expected to repay their taxpayer contribution by 2020.

“The Bill directs the Commerce Commission to consider actual financing costs incurred when considering the value of our (Chorus) assets,” McKenzie says. “The principal amount of the debt/equity investment would remain reflected in the value of the asset base. We will be reviewing the detail of the provisions carefully to ensure they reflect the intent of our infrastructure partnership with the Crown.”

Read more: NZ tech and telco sectors in the spotlight

Meanwhile, Vodafone says it is concerned that the Committee has not recommended that the Commerce Commission set pricing for unbundling the fibre network. “Leaving unbundling pricing in the hands of Chorus and the LFCs will prevent unbundling becoming a commercial reality, as was the experience with copper unbundling,” says Vodafone CEO Russell Stanners.

Broadcasting and Communications Minister Clare Curran has issued a statement welcoming the return of the bill to Parliament. “This piece of legislation provides a necessary reset, future-proofing New Zealand’s important and rapidly changing telecommunications industry. The Committee’s changes strike the right balance between promoting innovation and competition. I look forward to progressing this Bill through its second reading and Committee of the Whole in the coming months.”

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