Telcos hide behind copper price ruling to justify broadband hikes

InternetNZ, price rises, greed and cartels

InternetNZ isn’t happy about ISP price hikes after the Commerce Commission’s Final Pricing Principle determination for the UCLL and UBA copper services raised the regulated wholesale price of a copper line.

In Not sure if uncertainty causes price rise, or just greed, InternetNZ CEO Jordan Carter says he doubts price rises are necessary.

He says:

Whether they need to do this to cover the costs of wholesale isn’t proven, and it’s certainly on shaky ground that Vodafone need to increase their fibre costs when fibre pricing isn’t affected at all.

Meanwhile InternetNZ’s work programme director Andrew Cushen writes:

We’re heading in the wrong direction.

In the blog Cushen pulls apart some of the comments made by telcos justifying their decision to raise prices.

InternetNZ is right to be suspicious of the price rises. That’s part of the organisation’s job: promoting and protecting New Zealand’s internet.

Bigger picture

Taken in isolation, the price hikes might look unnecessary. But there’s a bigger picture. New Zealand’s big ISPs do not earn huge margins on broadband sales.

The answer to “Whether they need to do this to cover the costs of wholesale…” is that most ISPs don’t have margin to absorb those costs.

That’s the telcos’ own fault for not doing a better job anticipating the outcome of the Commerce Commission review. They pay analysts a small fortune for advice. If they are telling the truth when they say the Commission caught them unawares, it’s time to get better advisors.

The empire fights back

The price rises amount to a clawback. Not much of a clawback. For the most part, the higher charges on copper lines will leave ISP profit-and-loss accounts exactly where they are today.

Vodafone’s move to raise prices on its own HFC cable is different. There’s no increased wholesale access fee to pay, so the extra money goes in the profit column on the company’s accounts.

Vodafone has its own price rise issues.

The annoying part is not that ISPs need to raise prices, it’s that they’ve used the Commerce Commission decision as a fig leaf. It gets worse when they argue regulatory uncertainty means higher prices.

It would be good to see a telco admit: “We didn’t guess Chorus knew what it was doing when it asked for a full review of the earlier Commerce Commission decision”.

Spin and reaction

You could argue the problem isn’t so much what the telcos have done, but the way they've spun their decision.

Carter’s comments about ‘cartel-like’ behaviour are interesting. He questions the telcos’ ability to move almost at once to raise prices. Yet the more likely explanation is that Vodafone and CallPlus waited to see what Spark did before acting. If there were a little more margin in selling broadband, one or more players might have taken a punt on keeping lower prices.

There’s a useful test. Vodafone and CallPlus don’t file full financial reports, Spark does. If we see a jump in broadband profits when the company releases its figures, we’ll know we’ve had the wool pulled over our eyes.

Telcos only have themselves to blame for getting stick from InternetNZ. Past bad behaviour has come back to haunt them. They gouged customers, told lies, hid information, found creative ways to raise barriers to market entry and so on.

Now times are tough. There might be a case to give them the benefit of the doubt, but that’s not going to happen.