Tuesday 11th June 2019
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The Commerce Commission won't impose tougher regulation of Chorus's backhaul services after finding no evidence that higher costs in low traffic areas were driving up retail prices.
The regulator started a study into backhaul services - which link the edge of a telecommunications network to the core - in 2016 to better understand their current state and whether they needed to change to promote competition in the future. It was put on hold in 2017 to let the government consider the potential flow-on effects before resuming early last year.
Telecommunications commissioner Stephen Gale said the backhaul market was generally competitive except in some provincial areas where Chorus was the only provider and some links are more expensive.
“On these links Chorus has chosen to use a regulated pricing formula set by benchmarking in 2008. The relevant links are longer and carry less traffic but we expected that updated cost benchmarks would now be lower," Gale said. "Even so, we don’t propose to regulate at this point."
It decided against regulating now because the higher backhaul charges were having a minor effect on national retail broadband and upcoming regulations may bring some of the relevant services under the new pricing framework from 2022.
Chorus will start operating under a new pricing regime next year. The first tranche of the government-sponsored ultrafast broadband network due to be completed this year and the entire roll-out in 2022.
The commission's report found some anomalies in Chorus's backhaul portfolio, and said the company hadn't given those services the "appropriate level of attention." It welcomed the company's review of the portfolio and encouraged Chorus to offer more clarity on pricing and the services available on particular routes.
"These changes would allow Chorus' customers to better compare different backhaul options," the report said.
Chorus used the pricing formula for its regulated backhaul services to set some of its unregulated commercial services on routes that were typically longer and carried less traffic than other parts of the company's network, the report said.
"Higher prices for intra-regional backhaul in some areas do not appear to have negatively affected end-user demand for broadband connections or for data volumes consumed. However, we note that this could be because the demand for broadband data is inelastic and largely driven by factors other than price," it said.
The commission said it will consider the need for additional backhaul regulation as part of a review of the copper line network, which has to be completed before 2025.
Gale said the timing of that review will depend on the coverage of the new regulations, and the extent to which Chorus's internal review of backhaul services leads it to rationalise and explain its options and pricing.
Chorus shares fell 1 percent to $5.74 at today's open, and have gained 18 percent so far this year.
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