Regulation at any price?

22 Jan 2016 12:07 PM | Anonymous

Media Release
December 2015

"The Commerce Commission has just spent three years identifying the appropriate price Chorus can charge service providers for accessing the copper network and concluded an amount in line with common sense, but at a high cost to all participants," says Stephen Selwood Chief Executive of the New Zealand Council for Infrastructure Development.

"In late 2012 the Commission reviewed the price Chorus could charge for copper network, as required by law and in line with a new approach to estimating the fair cost of providing copper to homes and businesses.

The outcome of the first stage decision was that, instead of charging Spark, Vodafone and other service providers $45 per month per broadband customer, Chorus could only charge them $32.45 per month. Thats because $32.45 was considered approximately what it would cost to roll out the same infrastructure in Denmark and Sweden which were the only broad international comparators available.

"The anticipated drop in revenue meant that hundreds of millions of dollars were wiped of Choruss share price, international investors who could not understand what was going on departed in significant numbers and Chorus was left refinancing capital to roll out fibre at higher lending rates. The necessary cost cutting decisions which followed led to redundancies and other cut backs.

"As provided for under the Telecommunications Act, Chorus appealed this decision and asked for what should have been done in the first place - an actual estimate for what it would cost to roll out copper (or the modern equivalent, fibre) in New Zealand, including real costs like trenching almost every street across New Zealand and gaining the necessary consents and approvals to do so.

"This work has now been completed and the Commission has concluded that the fair price for providing copper services per unit is $41.69. This price takes into consideration the regulatory, market and physical costs of delivering telecommunications infrastructure in New Zealand.

"It is also in line with the actual costs of rolling out fibre, a number which was well known to all sector participants before the review of Choruss copper pricing was initiated.

"The bottom line is that, after three years of price and investor uncertainty, rollercoaster share prices and millions of dollars of public and private time, consumers are not really any better off.

"While we would all like the cost of phone lines and the internet to be lower, asking Chorus shareholders to subsidise public consumption is neither fair nor sustainable.

"As a country, if we want to reduce the cost of broadband and other infrastructure services, we have to reduce the actual costs of digging dirt and installing equipment.

"One way to do this is by reducing the cost of capital needed to fund long term infrastructure and that means improving the uncertainty and unpredictability of regulation.

"Lets hope that the Telecommunications Act review currently underway, and the RMA planning and consenting changes proposed in the Resource Legislation Amendment Bill now before the Select Committee, lead to better processes and outcomes for the future." Selwood says.

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