Government’s copper price gamble risks UFB future

Until February it looked as if New Zealand’s Commerce Commission would force Chorus to lower the price it charges telcos to use the copper lines connecting homes to exchanges and cabinets.

Lower copper prices may have meant cheaper broadband connections for users, higher profits for ISPs or both.

Chorus cried foul, saying cutting copper prices undermines consumer demand for the UFB fibre-based network the company is now building with government support. The company also said the price cut would hurt its annual earnings by up to $160 million a year.

No surprises here

That shouldn’t have been a surprise. Legislation says the Commerce Commission has to set cost-based pricing for the copper network. That was known at the time Chorus demerged from Telecom NZ. Investors took that into account.

Nevertheless, New Zealand’s government blinked. Communications minister Amy Adams announced plans to review telecommunications laws to tilt prices in favour of fibre.

There are two problems with this.

First, it will take another seven years to build the UFB network. Higher copper prices means those without fibre connections subsidise those with fibre. That injustice could be easily solved by smart legislation: charge more for copper access where there is a choice and less where there is not.

This is too simple and too sensible an idea for anyone in government to grasp.

Stifling demand

Second, stifling demand for copper services today could hurt fibre in the long-term.

That’s because the same logic which says charging more for copper than fibre makes fibre a more attractive proposition works equally well with wireless data.

Sure, wireless broadband is different to fixed-line broadband. Wireless data is also more expensive than copper broadband, but artificially inflating copper’s price lowers the relative difference between wireless and copper.

By not reducing copper prices, Chorus and the government are encouraging some users to switch to wireless who would otherwise have moved to more advanced fixed line technologies like VDSL.

The vanguard

In this context ‘some’ doesn’t need to be a high number. Those people are in the technological vanguard, they are the leaders and the influencers.

Will they return to fixed-line internet when the UFB finally passes their homes? Some may, many will not. Overseas evidence already shows fibre uptake is less than anticipated in countries with fibre networks where consumers have choice. The uptake is lower still where there are competing advanced wireless networks.

Artificially inflating the price of copper could artificially and unnecessarily wean people off fixed line broadband at just the wrong point in the transition to fibre. That could pose a far bigger long-term threat to the UFB and fibre uptake than copper.