On Friday the Commerce Commission outlined the proposed process for pricing Chorus’ unbundled bitstream access (UBA) – the wholesale broadband service the company sells to retail service providers.
The process will fix a price according to the ‘Final Pricing Principle’. That’s officialdom’s way of describing using a full economic model to determine the price.
At present, the Commerce Commission’s regulated price is based on benchmarking against other countries with similar services. Using this model the Commission set the UBA price at $10.92 – almost half the current price of $21.46.
Benchmarks are flawed
Chorus argues that process is flawed as there are few similar cases overseas to benchmark against. And anyway, benchmarking came up with the ruling that Chorus needs to sharply cut the UBA access price – the decision that caused all the recent fuss about the company’s finances and its ability to bring in the government-sponsored Ultrafast Broadband project on time.
In November, Chorus applied to the Commerce Commission to move to the Final Pricing Principle.
One reason this option wasn’t taken earlier is the process can be lengthy. These things can move at a glacial pace. When Chorus triggered the process it warned the investigations could take two years.
Read that as two more years of uncertainty for the broadband industry.
An early deadline
In Friday’s announcement the Commerce Commission set the deadline for the work to be completed by December 1. That’s the day the new price is due to take effect.
There’s no guarantee the Final Pricing Principle will come up with a higher regulated price. However, Chorus is confident that full economic model used by the Commerce Commission will come up with something considerably higher than the $10.92 figure reached through benchmarking. It has plenty of knowledge about where the investigation will go. The Commission says it will use Chorus’ experience delivering broadband on the copper network – and in some cases on the Rural Broadband Initiative network to help determine the price.
Chorus investors appear to agree with the company’s assessment. When the sharemarket closed on Friday, Chorus’ price was eight per cent higher. That’s the first good news Chorus investors have had in months.