Chorus backs govt's proposed telco pricing regime, wants detailed re-write of law

Wednesday 4th November 2015

Chorus, the regulated telecommunications network operator, is backing the government's proposal to install a similar oversight regime used for lines companies, and wants a detailed re-write of the law which it says can't be fixed by mere tinkering.

The Wellington based company says the building block model mooted in the Ministry of Business, Innovation and Employment discussion paper on the review of the Telecommunications Act would ensure infrastructure operators generate sufficient revenue to provide incentives to invest back in the network, and revive investor confidence which had been dented by price decisions under the existing rules.

That model, which would put both copper and fibre under a similar regime to that used by electricity distribution utilities, would limit uncertainty for investors, while providing enough flexibility to manage the copper-to-fibre migration and allow for reasonable returns, Chorus said in its submission on the legislative review. The company says there would be value in letting industry lead the transition to a new regulatory model to avoid price shocks, while at the same time meeting the commercial needs of companies and their investors.

"An industry-led approach (with an appropriate degree of oversight) could alleviate significant regulatory burden, remove industry contention and allow network operators and RSPs (retail service providers) to focus directly on those aspects of service provision that matter most to their interests without shocks," Chorus said. "Legislative change is still essential, but a regulatory undertaking (similar to the SAU (special access undertaking) regime used in Australia) could be used to address each of these points in a timely, proportional and responsive way."

The government wants to update the 14-year-old Telecommunications Act from 2020 in a sector that has rapidly shifted from traditional phone landlines and into digital services, which are increasingly encroaching on content provision. Communications Minister Amy Adams last month told the APEC telecommunications and information working group the country's "current process for setting wholesale prices for the copper network might not be the best approach in a fibre-based world."

Chorus said the legislative framework for the new regulatory regime "needs to be carefully structured" and protracted debates can be avoided if enough detail and guidance is incorporated into the founding document.

"A predictable and sustainable framework cannot be achieved by tinkering with the existing act - a first principles, ground up review is needed," the company said.

Chorus says there is enough time for new regulatory settings to make a difference which would let industry operate in a certain environment.

The company says the government should take a more cautious approach to fibre unbundling - which lets retail companies use parts of a network without having to replicate those components - because the benefits need to outweigh the costs. The company said the ultrafast broadband environment differs from when a vertically integrated Telecom Corp had a monopoly on the copper network, due to the carving out of Chorus and the introduction of fibre services.

"A shift to an unbundled regime would be a major change and likely fundamentally alter the product and pricing structure because the avoided costs are likely to be small compared to the wholesale bitstream service," Chorus said. "The questions of if and when a shift to unbundling occurs lend themselves to careful policy consideration because it may require a step change in products and prices for the industry and consumers."

Chorus shares were unchanged at $2.87, and have gained 7.9 percent this year.

BusinessDesk.co.nz

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