Intervening to keep prices high

The Commerce Commission is pressing on with its determination of copper wholesale pricing.

I’ve been asked why the Commission would waste everyone’s time and money on this when the Minister, Amy Adams, has decided to ignore it.

The answer’s simple – it is legally required to undertake the review. The Telecommunications Act was amended in 2010 by the current government to include the move from “retail minus” pricing to “cost plus” pricing for wholesale service.

The expected drop in price was considered enough of a risk that it was outlined in both the Ministerial Regulatory Impact Statement and Chorus’s own float prospectus document (page 80).  On top of that, the minister of the day, Steven Joyce, included a three year delay so as to allow Chorus to get its house in order in plenty of time.

The difference in approach between the Commerce Commission and the Beehive is quite extreme.

The Commerce Commission is comparing our pricing regime with others around the world, benchmarking against those countries that have similar approaches to wholesale. There aren’t many, only two in fact, but they are pitched at about the same price as the Commission’s draft determination. That is, somewhere in the $8 to $10 per line per month bracket.

The Minister has ignored international comparisons altogether.

The Commerce Commission then asks for submissions, puts out a draft determination, holds a conference, accepts inputs from various parties (including user group representatives as well as the various telcos and ISPs), considers all the views and then comes up with a final determination.

The Minister has decided the cost of copper wholesale will equal that of fibre.

One of the more compelling pieces of information to come out of the Commerce Commission’s conference came from Graham Walmsley of CallPlus.

CallPlus is one of our tier two telcos – that is, it’s not a Telecom, Vodafone or Chorus but is a leader of the next tier down.

CallPlus has spent a lot of money on unbundling Chorus exchanges so as to better control the product that it delivers to end users but also so as to build a wholesale business of its own. CallPlus sells access to its network to a variety of other providers and is a very good proxy for Chorus’s own network costs.

How much does CallPlus charge? It charges between $8 and $10 per line per month.

The Minister thinks that price should be between $13 and $33.57 and if she chooses the lower price, she’ll increase the cost of an unbundled line to ensure the overall total matches the price of a fibre line - $40 a month.

The Minister has intervened in a legally required process in order to ensure costs don’t come down for users.