ComCom raises copper access price by $2 — sets UBA at $10.92

Higher copper access cost means fibre debate set to intensify

Today the Commerce Commission issued its final decision for the additional cost component of Chorus’ unbundled bitstream access (UBA) service, setting the rate at NZ$10.92 per line per month, effective from 1 December 2014.

That's a $2 increase above the draft decision’s $8.93 estimate. Together with the regulated unbundled copper local loop (UCLL) charge of $23.52 per month (set December 2012), this gives a capped total wholesale copper line price of $34.44 per month from the end of next year.

By comparison, the current (pre-new regime) wholesale charge is $44.9. A draft government discussion document earlier in the year had proposed $37.50.

Why has this price increased?

When the Commerce Commission released its draft UBA price in December 2012, it proposed $8.93 per line per month. This figure is based largely on international benchmarking (notably Denmark and Sweden) and simplifying assumptions.  

In developing its final position, the Commission revised its benchmark set—adding in costs from additional countries (Belgium, Switzerland, Greece) and adjusting for network configuration and service-speed distinctions. It concluded that adopting the higher Swedish benchmark better balanced incentives for investment, competition and long-term network sustainability. 

The Commission also removed a network element previously used in its draft cost base and broadened speed‐differentiation in its modelling. 

Telecommunications Commissioner Stephen Gale says the aim is not to underprice the UBA service and thereby discourage future investment or disadvantage end users over time.

Chorus objects

Chorus objected to the draft’s lower figure, warning the cut would cost the company in excess of NZ$150 million annually.

Under the final figure, the adjustment in revenue exposure is reduced, shifting the projected impact to approximately $120 million annually (from variations compared with status quo).

A $2 per line increase is enough to ease, but not eliminate, tension. Chorus warns wholesale pricing uncertainty could undermine capital planning and investment, especially given that Chorus is central to the rollout of the government-backed Ultra-Fast Broadband (UFB) fibre network.

Prime minister weighs in

Prime Minister John Key warned earlier that too steep a cut could jeopardise Chorus’s financial viability. In effect, he says it could send Chorus broke.

Chorus rejects any suggestion of insolvency, noting legally it would have to alert shareholders if distressed. The final decision softens — but does not eliminate — shareholder concern.

The $2 difference takes some pre4ssure off Chorus, but may not be enough to satisfy shareholders – who were warned a price cut was coming when the company demerged from Telecom.

Communications and Information Technology Minister Amy Adams responded to the decision with brief statement saying: “Now that the final UBA price is known, the Government will consider its options in detail before making any further decisions”.

Copper, fibre, regulatory risk

This decision comes amid growing tension in the copper vs fibre debate. New Zealand is rolling out its Ultra-Fast Broadband (UFB) programme, with significant government subsidy. There's an expectation that fibre will gradually replace copper as the main broadband medium.

Because UBA is an overlay over the copper network, regulators must strike a balance: setting a price that is sufficiently low to stimulate service competition and consumer benefits, but not so low as to deter investment in next-generation infrastructure.

There is also regulatory risk over backdating. In earlier consultations the Commission suggested any new wholesale price backdating should not go earlier than 1 December 2014. 

The Commission is consulting on how it will model cost inputs for both UCLL and UBA (for instance, whether to assume a replacement network involving fibre, copper, or hybrid technologies) as it refines regulatory cost models. 

Today’s decision is unlikely to resolve these tensions. It recalibrates the landscape, but the copper-vs-fibre debates, investor pressures and regulatory modelling choices remain very much alive.