Adams proposes hybrid price regulation for telco networks

Tuesday 12th July 2016

Communications Minister Amy Adams is proposing a mix of price and revenue caps for telecommunications network operators such as Chorus in an overhaul of legislation regulating the sector and how it can charge for services.

The government had already signaled plans to change the way prices are regulated, mirroring regulation used in the electricity sector. Adams today proposed a revenue cap for an ultrafast broadband provider's regulatory asset base, and price caps for basic services such as voice-only, entry-level broadband, and basic broadband, deemed to be anchor products, as the preferred option.

"We think this approach is appropriate as it manages the risks arising from uncertain demand forecasting during the unique period of shifting demand from copper to fibre, through a wash-up mechanism," the Ministry of Business, Innovation and Employment said in the options paper released today. "The revenue cap approach combined with anchor products should provide incentives for regulated suppliers to innovate and offer premium products (along with unbundling of UFB services)."

MBIE officials want price-quality regulation to determine Chorus's pricing from 2020, to consistently regulate the network operator's fibre and copper services, making a smoother transition from the existing regime.

"This view is influenced by the scale and nature of Chorus’s fixed-line business," the paper said. "Chorus operates the entire nationwide copper network and by 2020 will operate around two-thirds of the UFB network nationally."

Local fibre companies, such as NorthPower, Ultra-Fast Fibre, and Enable face more competition and MBIE officials deemed the threat of regulation was more appropriate for them.

Adams launched a review of the 15-year-old Telecommunications Act last year to gauge the crossover with broadcasting and to have a look at the way network service pricing was regulated after Chorus underestimated the extent it would have to cut wholesale prices when it was carved out of Telecom Corp.

Chorus welcomed the review, saying it was "pleasing to see the government's timetable indicates that a more fit for purpose regime can be put in place by 2020", while Spark New Zealand, formerly Telecom, said it was good to see "the importance of network quality regulation recognised in the paper, considering the high level of consumer and industry frustration we are seeing in the current model".

The paper proposes to keep the exemption for broadcasting infrastructure in the Telecommunications Act, with submissions on the review generally indicating "traditional broadcasting network providers are actually facing increased competition as a result of convergence" and that "there is no clear ongoing problem with broadcasting services delivered using traditional broadcasting networks that would justify bringing them within the scope of access regulation under the Telecommunications Act".

It also thought there were enough safeguards in place to ensure 'net neutrality', meaning all internet traffic is treated the same, but more feedback is being sought since the announcement of Sky Network Television's proposed merger with Vodafone New Zealand.

The paper also wants submissions on whether there are sufficient incentives for efficient infrastructure sharing by mobile providers, including the availability of competitively priced national roaming, or whether intervention is warranted.

BusinessDesk.co.nz

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