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Commerce Commission lays out max revenues for Chorus

By Shannon Williams
Tue 1 Jun 2021
FYI, this story is more than a year old

The Commerce Commission has announced its draft decisions on price-quality regulation for Chorus as well as information disclosure requirements for fibre companies.

The Commission released for consultation its draft view on the maximum revenues Chorus should be able to earn from its fibre network over the first three years of the new regulatory regime that takes effect from 1 January next year, and the minimum quality standards Chorus should meet.

Telecommunications Commissioner Tristan Gilbertson says the Commission's role is to deliver the best long-term outcomes for New Zealand consumers.

"Our aim is to achieve a smooth transition into the new regime, by retaining the features that have made UFB such a success, while also putting in place the core components of building blocks regulation, which create incentives for Chorus to act in the best interests of consumers and promote competition in telecommunications markets," he says.

Gilbertson says that the estimated price-quality path for Chorus announced for consultation would cap Chorus revenues for three years from 1 January 2022 at $689 million in 2022, rising to $786 million in 2024, in line with forecast demand. The revenue cap is around 4% lower than proposed by Chorus across the period. 

The Commission's draft decisions include the expenditure that Chorus can recover over the regulatory period. Following scrutiny, the Commission proposes to reduce Chorus expenditure allowance across the period by $210 million (in real dollars), a 14% reduction on Chorus proposal. However, Chorus may re-apply for some categories of expenditure included in this reduction via another mechanism. 

The Commission also outlined at a stakeholder briefing its draft decisions on information disclosure requirements for Chorus and the three other regulated companies that operate fibre networks in the country: Enable Networks, Northpower Fibre and Ultrafast Fibre. 

Information disclosure regulation requires all four regulated fibre providers to periodically publish information about their performance, including important data on pricing, current and future expenditure, quality performance, and financial statements so that all interested parties can understand how they are performing individually over time, and when compared to others. 

"Information disclosure has proven to be a powerful tool in other sectors, such as electricity and gas, where increased transparency helps limit excessive profitability while ensuring services reach the quality demanded by consumers," says Gilbertson.

The Commission has also proposed some limited amendments to the Input Methodologies the upfront framework of rules that underpin the regime. These amendments are intended to enable the effective implementation of the Commission's draft decisions or to enhance certainty about the rules, requirements and processes that apply to price-quality paths and the ID requirements. 

The Commission is separately consulting on the initial value of Chorus fibre network at the start of the regulatory period, or what is referred to as its regulatory asset base (RAB). Its draft view will be announced in August. 

The Commission's draft view on Chorus price-quality path, the information disclosure requirements, and proposed fibre input methodology amendments can be found on its website.

The Commission has also published draft guidelines on Chorus geographically consistent pricing obligations.

Submissions can be made through the submission portal until 8 July, and cross-submissions can be made until 22 July.

As set out in its process update in April 2021, the Commission remains on track to deliver the next steps in the process as follows:

  •     Draft decision on Chorus initial RAB in August 2021.
  •     Final decisions on fibre IM amendments in August and November 2021.
  •     Final price-quality decision for Chorus in November 2021.
  •     Final information disclosure requirements decision for Chorus and the three local fibre companies in November 2021.
  •     Final initial RAB decision for Chorus in 2022.
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