Three reasons government shouldn’t price discriminate against copper networks

John Key says his government hasn’t ruled out using legislation to bypass Commerce Commission recommendations that could see a sizable fall in wholesale broadband prices.

That kind of move would protect Chorus which says it could lose up to $160 million a year from the regulatory change.

It would also become a form of price discrimination favouring the UFB fibre network being built by Chorus and three other fibre companies. In effect government intervention would make copper less attractive by making it more expensive than fibre.

While it is understandable the government would want to shore up its own fibre project, there are three reasons why this is a bad move:

1. It punishes poorer New Zealanders

It will take another seven years to build the fibre network. Business districts, schools and medical centres are a priority. Next on the list are the wealthier suburbs where the government thinks people are more likely to sign-up early for fibre. The poorer suburbs are at the back of the queue.

This means poorer New Zealanders will have no choice but to use copper for years to come. Making them pay more for it is doubly cruel.

This is politically dangerous for a National government. While it isn’t quite take-from-the-poor, give-to-the-rich, National’s opponents could easily make it look that way.

2. Not everyone gets fibre any way

If everything goes to plan – let’s assume for now it will – UFB will reach 75% of New Zealanders by 2019. There’s the rural RBI network for those in the back-blocks. People in small towns will be left with the fibre-to-the-node network where the last leg of distribution will be over copper. Making them pay more for their copper will add insult to injury.

Higher copper prices also mean ISPs will be less able to invest in technologies like VDSL to serve these customers.

3. Making copper dearer won’t change fibre demand anyway

Copper is the gateway drug leading to fibre. People who buy faster copper services, such as VDSL, are likely to be the first to buy fibre when it becomes available. Getting people hooked on fast broadband will do more to make sure fibre succeeds than discriminating against copper.

I’ve said all along, if the government has to discriminate against copper to sell fibre, that means there’s something wrong with the fibre project that needs fixing. Fix the problem, don’t cripple the competition.

What I would do

I’m not in favour of discriminating against copper full stop. If I was a politician and my advisers convinced me it was necessary to discriminate against copper in order for my fibre project to succeed, then I’d choose to discriminate against copper only where the fibre alternative is already in place. in that way, the price discrimination wouldn’t punish those who don’t have fibre access.

My guess is the government won’t do this, because that kind of price discrimination would only serve to highlight the problem. What do you think?

2 thoughts on “Three reasons government shouldn’t price discriminate against copper networks

  1. Pingback: the innovator’s dilema « Gnstr's blog

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