Telco regulation 'always going to drive a pricing sea-change', judge says

Tuesday 8th April 2014

The law change allowing Telecom to carve out its Chorus network unit to participate in the government's ultra-fast broadband scheme "was always going to drive a pricing sea-change" for the company's regulated services, according to a High Court judge.

Justice Stephen Kos today turned down an appeal by Chorus to have the regulator's initial pricing principle (IPP) set aside, and for the commission to redo the process after its first decision ordered Chorus to slash prices for access to its copper lines.

The judge said the commission did what Parliament prescribed in finding an IPP price based on international benchmarks relatively quickly and cheaply, and that the appropriate response by unhappy parties was to request a more fulsome final pricing principle under the legislation.

"The IPP outcome was not evidently irrational, however unpalatable it may have become to Chorus," the judge said.

Justice Kos said the commission was aware Chorus wanted a higher price to be determined under the IPP, and the draft price it proposed "involved a very substantial reduction" from the $21.46 price under the old regime.

"As to regulatory shock, the commission was plainly aware of the submission," the judgment said. "But the new statutory regime was always going to drive a pricing sea-change."

Chorus appealed the commission's final determination in November last year setting the unbundled bitstream access monthly price at $34.44 per line, up from the $32.35 price initially mulled in its draft decision, with the additional UBA component accounting for $10.92 and the unbundled copper local loop accounting for $23.52.

At last month's hearing, Chorus claimed the regulator erred in law when setting the price Chorus can charge for access to its UBA services in that it didn't have any evidential basis to narrow its inquiry and ignored a section of the legislation aiming to support the government's goal of building a nationwide fibre network.

The commission rejected the claim, arguing that the change in regulation, rather than the decision, had shocked the market.

Justice Kos today said the regulator's benchmark range of prices followed "a process probably more extensive than Parliament had in mind" and wasn't limited when the commission reached its determination. It also exercised permissible judgement when applying a section of the law designed to minimise the risk regulation would have on investment and innovation in the sector, he said.

"Despite the combined intelligence and force with which Chorus's submissions were delivered, I am left unpersuaded that the commission erred in law in setting the IPP price for UBA," the judge said.

BusinessDesk.co.nz

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