New Zealand Government overturns regulator's decision on copper pricing

9 Jan

Auckland city

A couple of months back, the New Zealand Commerce Commission (the telecom regulator) announced that copper prices would be drastically reduced as the result of a switch in pricing methodologies from retail minus historically to cost based. As a consequence, the wholesale copper prices were due to go down from $NZ21 to $NZ9. One of the side effects of such a drastic drop in pricing was that the whole migration plan for ultra-fast broadband switchover, part of which relied on wholesale fiber access prices being lower than copper access prices for a much better performance were understandably in jeopardy. In fact it was one of the key risks we pointed in our report on the otherwise very smart New Zealand fiber transition model in our report Can the New Zealand NGA Model be Replicated?

Today, Prime Minister John Key proposed to overturn (or ignore, I don’t quite know what the appropriate term is) the Commerce Commission’s decision. This article from the New Zealand Herald (Key’s stance on the broadband decision gob-smacking) brings in some detail, as well as some very strong negative opinion on the decision. I have to say that, distant as I am from the theater of operations, my opinion on the matter is less clear-cut.

Obviously, over-ruling a theoretically independant regulator is never a good idea, it undermines a well-needed separation of powers and is certainly not something I’d condone on principle. As the NZ Herald article points out, the decision to switch from retail minus to cost was furthermore a government decision as part of the telecoms act of 2011.

Having said that, the fact that the regulator admitted to benchmarking only two international operations to establish its costing methodology (citing the lack of comparable projects as the reason for it) and the fact that the whole process was completely disjointed from the ultra-fast broadband migration makes me think that the result (of overturning the decision) is the right one.

So I’m torn. I really find the method distasteful, and it’s not like this couldn’t have been anticipated by government and regulator alike. But I absolutely think it’s crucial that wholesale copper prices be maintained higher than wholesale fiber prices. If you have a bit of time to read ahead of you, check out the Ventura / Portland Advisors study that argues that copper 15% higher than fiber should be the reference to ensure switchover.

In other words, a typical case of the right hand not talking to the left…


Photo: Auckland City by chuckbiscuito

2 Responses to “New Zealand Government overturns regulator's decision on copper pricing”

  1. Hamish MacEwan January 9, 2013 at 5:55 pm #

    UFB won’t be rolled out for years, and in the meantime the best way to prepare and prime the migration is to stop giving $12 free cash to Chorus a month, and hope that users of the copper input spend $12 more money on bandwidth to improve the NZ experience and lift datacaps even higher.

    If the government wants to change its own rules, woe betide.  And if it wants to use legislation to achieve migration (and reversing the Commissioner’s recommendation is just an indirect method of achieving exactly that) why not show some courage and just do it.  Make regulations requiring fibre in every home.

    My final observation is that it is a damning indictment of fibre to the home that it can’t succeed on its own merits.  Instead artificial pricing (to the benefit of an incumbent) is apparently necessary.

  2. Public sector advisor January 15, 2013 at 12:18 am #

    I agree with Hamish. Even if the Commission did have a mandate to consider the effect on UFB (which it hasn’t), what about people like me who have only the promise of fibre by 2019 and don’t have my local exchange unbundled and can’t get TelstraClear cable – am I doomed to be stuck with an overpriced, inferior broadband service for the next six years just so others can have fibre?

Leave a Reply