The Commerce Commission has slightly scaled back cuts to
wholesale broadband prices in the face of looming Government
intervention in the market.
The regulator this morning released its final decision for
what infrastructure company Chorus charges internet retailers
such as Vodafone or Orcon for services over its copper-line
The monthly wholesale price per line the commission decided
was $34.44, a cut of 23 per cent.
This is slightly less than the $32.45 per month price the
regulator announced in a draft decision last December, which
was a cut of almost 28 per cent on the $44.98 Chorus charges
The final price is still, however, well outside the
Government's proposed range for copper broadband prices of
$37.50 to $42.50.
Today's decision follows months of controversy over looming
Government intervention in the market after Chorus expressed
distress at the Commission's draft ruling.
The commission's price of $34.44 is made up of two
components, the unbundled bitstream access (UBA) charge and
the unbundled copper local loop (UCLL) charge.
UBA is a service that allows telecommunications companies to
supply broadband services to customers without the need to
replicate Chorus' electronics or software while UCLL allows
telcos to supply voice and broadband services to customers
using their own equipment over Chorus's local loop.
The UCLL component was set at $23.52 per line per month last
year and today the commission decided the UBA component
should be $10.92.
On the day of the draft decision last year, Chorus' share
price tanked and the company estimated the proposed cuts
could shave up to $160 million from its annual earnings
before interest, tax, depreciation and amortisation (ebitda).
This is almost 25 per cent of the ebitda Chorus recorded in
its last annual result and at the time of the regulator's
announcement the company said the cut could require it to
"fundamentally rethink its business model".
These wholesale prices also have a big impact on Chorus,
which kept ownership of the copper network when it split from
Telecom in 2011 to build the majority of the Government's
ultra-fast broadband network.
This new fibre-optic network, due to be completed by 2020,
offers much faster internet speeds than the copper network
which most New Zealanders use for their broadband today.
Only a small proportion of the country is able to connect to
fibre now and Chorus is still reliant on the copper network
for a big chunk of its revenue - which is why it has a lot at
stake in the price fight
Chorus chief executive Mark Ratcliffe said cutting copper
prices by that level would also significantly reduce uptake
for fibre internet services. This is because if copper prices
are low relative to fibre, consumers have less of an
incentive to move to the faster service, which undermines the
That afternoon the Prime Minister, John Key, said the
situation appeared "problematic"and would not rule out using
legislation to overturn the commission's decision.
Communications and Information Technology Minister Amy Adams
then fast-tracked a review of telecommunications law,
suggesting in August that the Government intervene and set
copper prices itself from 2015 to 2020.
The Government then released a discussion document suggested
prices should be between $37.50 and $42.50, the same as
entry-level charges for fibre services.
But the Coalition for Fair internet Pricing - a collection of
industry associations, internet retailers and consumers
groups - cried foul.
The coalition argued that the intervention, by proposing
price cuts smaller than the commission had, was putting a
$588 million "tax"on broadband customers that would go to
Chorus' shareholders. It later revised estimates of this
"tax", putting it between $390 million and $449 million. It
argued the regulator should be responsible for setting prices
rather than the Government.
- Hamish Fletcher of the NZ Herald