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Spark New Zealand calls Chorus out

24 Feb 15

Spark New Zealand says two international experts have indicated proposed Chorus wholesale charges could be at least $12 a month per customer higher than they should be.

In a submission to the Commerce Commission, Spark has called for the Commerce Commission to rework its numbers and consult further with industry players before finalising the new charges.

In December the Commerce Commission released its draft decision to lift the wholesale price of copper. The decision signalled a $5.40 increase in the wholesale charges which have been in place for the past two years, for home phone lines, and a $4.54 increase in the broadband line charges that took effect in December 2014.

The increases resulted in Spark, along with other ISPs, increasing its broadband and fixed line charges.

John Wesley-Smith, Spark general manager of regulatory affairs, says Spark believes the increases are ‘unnecessary’ and should be reversed.

Spark says the Commission’s first attempt had come up with a proposed charge for landline access that was 80% higher than the median price in 14 other comparable countries, including Australia and the UK, and 60% higher than the next most expensive country.

“This is not because of any New Zealand specific factors – it does not cost 80% more to provide landline access in New Zealand than everywhere else on a like for like basis,” Wesley-Smith says.

“This is the result of choices made in the draft modelling, and in a number of cases we think there are better choices it could make that avoid this significant divergence from international prices.

“Our experts’ analysis shows that the Commission’s draft model loads an enormous amount of unnecessary costs onto New Zealand consumers.

“We think we’ve shown enough to put the onus on the Commission to change its model to exclude these costs - or if not, to explain why it would be in New Zealand’s best interests to hold broadband prices up by setting wholesale charges 80% higher than in other countries.” 

Spark says two international firms commissioned by Spark had reviewed the Commission’s cost model and concluded it overstated the costs involved in Chorus providing wholesale voice and broadband services ‘by a considerable margin’.

“By making some conservative adjustments to the Commission’s model, one expert firm came up with a charge for landline access of $16.64 a month, compared with $28.22 proposed by the Commission,” Spark says.

The other firm said the charge could be reduced even further if the model took more account of newer technologies such as fixed wireless access.

“With these adjustments, the wholesale charges in New Zealand would be much more in line with those applied overseas, and this would translate into lower retail broadband prices than we have today,” Wesley-Smith says.

He says it doesn’t make sense that charges for last-century copper broadband are increasing at a time when ultrafast broadband over fibre is being rolled out to three-quarters of New Zealanders.

“The Commerce Commission needs to make it clear why any increase in wholesale charges for copper access would be justified.”

Spark says it is also concerned that the Commission was leaning towards backdating the new charges to 01 December 2014, even though the charges won’t be finalised until at least the second half of 2015.

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