Recently, New Zealand Commerce Commission finalised an access determination for copper-based unbundled bitstream access (UBA) services, cutting prices for a basic UBA service by 23 percent.

“The regulator’s recent pricing decisions significantly affect Chorus’ revenue base and investment capacity after 2014, and will also make fibre relatively unattractive to end users," says David Kennedy, Research Director, Telecoms Asia Pacific, Ovum.

In Ovum’s view, the impact of the UBA decision will reach beyond Chorus. Coupled with the cut to ULLS pricing, ComCom’s decision will affect takeup of fibre by making copper relatively more attractive to both end users and to the retail ISPs who supply them.

Chorus and the other UFB investors are structurally separated and so are dependent on these ISPs to promote fibre to end-users. The ISPs now have less incentive to do so.

The Ernst & Young report confirms the current NZ$1b funding gap, and it proposes a range of changes within the current framework to address this, particularly price increases on unregulated products and quality reductions to reduce costs.

"It is naive to think that such a large shortfall will be borne by shareholders alone," Kennedy adds. "Much of the shortfall can be addressed, but it is becoming clearer that this will come at a price to users.

"However, the fundamental problem remains unaddressed by this report. The tensions in the New Zealand telecommunications policy framework will persist as long as New Zealand has two access networks, FTTN and UFB, operating in parallel.

"Apart from the pricing problems, New Zealand telecommunications would operate much more efficiently if demand were consolidated onto one fixed access network. Policy currently envisages a gradual, organic migration to fibre, but at some point the FTTN network must be shut down in the UFB footprint."

Kennedy believes that if the government remains committed to the UFB program, then migration should not be left to chance.

"A migration timetable, with scheduled shutdown of FTTN where UFB is established after a reasonable transition period, is the logical extension of the Government’s commitment to UFB," he adds.