New Zealand's Commerce Commission issued its final decision setting the wholesale prices that Chorus can charge for use of its local copper lines and broadband service over the next five years. In an increase from its draft decision in July, the commission set the prices from 16 December at NZD 29.75 per month for unbundled copper local loop and NZD 11.44 per month for unbundled bitstream access. The maximum monthly prices increase slightly each year for the next five years, but average a total of USD 41.69 over that period. This is up from the current price of USD 34.44 per month, set by international benchmarking at the end of 2013 and in effect since December 2014. Prior to December 2014, Chorus was able to charge USD 44.98 per month for its wholesale broadband service.
The Commission confirmed in a split decision it will not backdate the final UCLL and UBA prices, meaning Chorus cannot recoup the difference from the current price over the past year from providers on its network. Calling this "the most complex and extensive economic model the Commission has ever been tasked with creating", the regulator said the final price rise was the result of increasing the amount of trenching required to physically lay the network and adjusting the make-up of fibre and fixed wireless connections. This was partially offset by other changes, including a decrease in the allowed rate of return for Chorus due to the fall in interest rates since July, and the removal of vacant properties from the model.
Chorus said it was pleased the Commission had taken into account feedback on the "true value" of its network, but noted that prices are still below those when it was spun off from Telecom New Zealand (now Spark). The company updated its full-year 2016 EBITDA guidance to NZD 580-600 million to take account of the expected NZD 120 million in additional net EBITDA from the decision. Chorus noted that this is still around NZD 50 million below equivalent pricing prior to demerger, while also taking into account extra costs to improve the end-to-end fibre connection process for customers.
Spark, the main customer on Chorus' network, said the decision will increase its FY 2016 costs by around NZD 22 million and full annual costs by NZD 38 million. However, the company said this will not affect its financial guidance, as it plans to increase retail prices in order to offset the higher costs for wholesale access. Spark said it's consumers who will suffer from the Commission's decision, through higher prices, while the cost of accessing the copper network will now be more than on the UFB fibre network. The operator also bemoaned the regulatory uncertainty of the past two years and the negative impact on investment.
Interest group InternetNZ said it was disappointed with the decision, calling it a "travesty" that is out of step with most other countries where copper access prices are falling. The "extreme nature" of the price increases will likely prompt legal action, it said in a statement. The Telecommunications Users Association of New Zealand echoed this concern, saying the market could still be facing uncertainty if the decision ends up in court. Both groups said they hope post-2020 regulatory review of the Telecommunications Act will ensure better outcomes for broadband users.
