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Chorus to get regulatory relief on copper network in new fibre environment

Friday 10th February 2017

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Telecommunications network operator Chorus is set to get regulatory relief for its copper network under new rules governing prices for the fibre infrastructure. 

Communications Minister Simon Bridges today unveiled plans to deregulate the copper network where it competes with fibre from 2020, expected to cover three-quarters of the population by then. The government had already announced a new regulatory scheme that would impose a revenue cap based on an ultrafast broadband provider's regulatory asset base and price caps for basic services, which would likely be voice-only, entry-level broadband, and basic broadband product, using what's termed a building block model. 

The latest proposals were put before Cabinet when Amy Adams was still minister and agreed to in December last year, and Bridges put out a new consultation paper today proposing to deregulate the copper lines where fibre was available, meaning Chorus would be able to keep operating the lines or close them down. Outside those areas, Chorus would have to keep supplying copper services capped at 2019 levels, and the arrangements would be reviewed in 2023 to make sure they're working. 

Chorus and Spark New Zealand would also have the Telecommunications Service Obligation, formerly known as 'kiwi share', lifted in the areas with fibre, although Spark's emergency 111 service obligation wouldn't change. 

"Under this approach, should Chorus lose a customer to a competing network (for example 'fixed wireless' broadband and mobile networks), it will not recover any ongoing revenue for that customer through regulated prices," the discussion paper said. "Chorus should therefore have an incentive to respond to the risk of copper line loss to these services by upgrading its network or lowering its prices."

As at Sept. 30, Chorus had 1.71 million fixed line connections, of which 216,000 were fibre, while of its 1.23 broadband connections 203,000 were on fibre. 

In a separate statement, Chorus general counsel Vanessa Oakley said the changes create "some additional complexity for regulatory implementation, such as cost allocation, that we will need to consider carefully" and "raises questions around incentives to invest in the high-cost rural areas currently served by copper".

Bridges' predecessor launched a review of the 15-year-old Telecommunications Act in 2015 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, now Spark. Since then, Chorus and Spark have been in a spat over the ability of different technologies to provide broadband services as upgrades prolong the life of copper delivery and new generation mobile enhance wireless networks. 

A regulatory impact statement prepared by the Ministry of Business, Innovation and Employment said deregulating the copper network in those areas with fibre let the network operator compete more effectively with copper services, although some of those customers "may face price increases unrelated to the cost of service" and poor information or transaction costs might hinder them from switching.

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