ComCom consults on cost of capital for telecommunications price reviews

The Commerce Commission is seeking submissions on its proposed approach to setting the rate of return on capital for the unbundled copper local loop (UCLL) network and the unbundled bitstream access (UBA) service.

The allowed rate of return on capital is also known as the ‘weighted average cost of capital’ (WACC).

“To set these prices we are estimating the costs of the UCLL network and the UBA equipment,” says Dr Stephen Gale, Telecommunications Commissioner.

“The prices that will be allowed will also include the WACC.”

The Commission proposes to use the same general approach to the cost of capital that was developed for the regulation of energy networks and airports. This approach was incorporated in the 2010 cost of capital input methodologies (IMs) that were upheld in appeals to the High Court last year.

The Commission will be seeking independent expert advice to tailor the general approach to allow for the specific risks and capital structure of a telecommunications network business.

The Commission invites submissions, supported by evidence, on the proposed approach. Interested parties will have a further opportunity to submit on WACC, including the specific parameters the Commission adopts, in response to the draft UCLL and UBA price review determinations.

The consultation paper can be viewed at: www.comcom.govt.nz/uba-final-pricing-principle-price-review or www.comcom.govt.nz/ucll-final-pricing-principle.