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Chorus says regulator understates network pricing costs such as trenching

By Pattrick Smellie, Tue 18 Aug 2015
FYI, this story is more than a year old

Chorus has made a further submission to the Commerce Commission ahead of the final determination on pricing of its copper network, saying the regulator's model understates costs, including the cost of trenching needed to bury underground fibre cables as part of the nationwide ultra-fast broadband rollout.

In its draft determination released in July, the regulator proposed setting the total price Chorus can charge for wholesale broadband services at an average $38.43 per month, largely in line with the $38.39 price established in an earlier estimate and up from the $34.44 price set in the benchmarking process which came into effect on Dec. 1. It will deliver its final verdict in December.

Today, Chorus said the commission "still needs to do more to take credible New Zealand costs into account where that information clearly exists." It cited costs to dig trenches as an example, saying they had been "drastically reduced in their hypothetical model."

"Chorus is currently building a new fibre network and has tendered competitively for this work," Chorus general counsel Vanessa Oakley said. "As such we have genuine, tested in market, up to the minute, accurate information. The hypothetical trenching rate used by the commission in its model is less than half of the true cost.”

Chorus also argued that one-time costs such as to connect a new customer "are also based off competitively tendered pricing, which ensures they are based on New Zealand reality."

“The commission has applied an across the board 30 percent reduction to transaction costs, however we again have credible, up to the minute, competitive costings that could be applied,” she said. She also said there is "is a strong legal precedent for backdating the more accurate price indicated by the current FPP draft determinations."

Chorus had sought the review of network pricing that was released in draft form in July after claiming the original decision, based on international benchmarking, would force it to cut prices too steeply and put its investment in building a nationwide fibre network at risk.

In the draft determination, the regulator had proposed not to backdate the wholesale pricing, although it was a split decision among commissioners.

The decision not to backdate prices, a reversal of the commission's initial view, was welcomed by industry groups the Telecommunications Users Association of New Zealand and Internet New Zealand.

By Jonathan Underhill

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