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Chorus takes stab at unbundled fibre pricing

Thursday 28th March 2019

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Chorus is warning the broadband industry not to expect the level of savings from unbundling fibre services that were achieved on the copper network.

The network provider today proposed a lower monthly price for retail broadband firms wanting to attach their own electronics directly to the fibre network. It also set a fee to help split shared fibre to individual customers. 

From next year, local fibre companies, of which Chorus is the biggest, are required to provide unbundled services, where retail service providers  - or RSPs - access the base infrastructure using their own technology to manage the service.

The ultrafast broadband network is harder to unbundle than the old Telecom copper lines that form the base of Chorus's legacy assets, in part because of the technology, but also because taking fibre to the home created more entry points than the streetside cabinets of the copper network. 

"While I’m sure some RSPs will argue for even lower input costs, the economic and technical reality of unbundling a newly-built, world-class fibre network is much more challenging than unbundling much older, often fully depreciated, copper network assets that have a fundamentally different architecture," chief customer officer Ed Hyde said in a statement. 

Chorus is pitching a $28.80 monthly charge covering access to the fibre between the premise and the splitter - a key point where shared fibres are split into individual fibres that go into each customers' home or office. It would also charge retailers $200 a month to access feeder fibre from each splitter, which can connect up to 16 customers. 

The network operator's regulated prices for the transition period between December 2019 and January 2022 range from $25 a month for a monthly voice connection up to $65 for a 1 gigabit per second connection. 

"Unbundling economics mean that it is most likely to appeal to the larger RSPs, so the proposed pricing released today seeks to strike a fair balance for all, by enabling RSPs who choose to unbundle to deliver their services, at the same time as ensuring a competitive playing field for all other RSPs," Hyde said.

Vodafone New Zealand has lobbied hard for unbundling to allow direct access to the fibre, arguing it is central to promoting competition. It's set up a joint venture with Vocus New Zealand, the parent of third-placed RSP Orcon, to buy fibre access at a wholesale price then repackage it for consumers to allow greater innovation for consumers.

The Commerce Commission is currently working on how to set input prices for fibre as it prepares for the new regulatory framework for fibre services. It plans to publish its final decisions in June next year. 

Chorus today said about 97 percent of its capital investment in fibre has been on the base infrastructure known as layer 1. That means unbundling won't provide the same savings for retail service providers as it did on the copper lines. 

Hyde said one of the hardest aspects of developing the pricing model was that the costs Chorus avoids by not providing the electronics are minimal. 

"We are also seeking to ensure Chorus’ own ability to generate a return from its billions of dollars of investment in fibre, which is essential for ongoing investment and maintenance of strategically critical infrastructure," he said. 

The company's biggest shareholder, L1 Capital, this week told investors that the new regulatory model should free up cash for bigger dividends over the next five years, and says the share price is "extremely undervalued". 

In a submission to the commission's current work, L1 warned the regulator that service providers such as Spark and Vodafone had significant incentives to lobby for an unorthodox interpretation of the law to minimise their own costs or entrench their strong market positions.

Chorus shares rose 0.5 percent to $5.80 at today's open, and are near the record $5.86 reached on March 15. 

(BusinessDesk)

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