ComCom decision a win for Government

The Commerce Commission has released its final determination
on UBA pricing
and the figure comes in at the high end of the range at $10.92 per
line per month.

That means the total any ISP will pay for wholesale service
is $34.44 per line per month, down from $44.98.

Chorus is very unhappy about this and will no doubt call for
a FPP (a Final Pricing Principle) review. That won’t stop this figure coming
into effect from December next year, but could result in a change to that
number by the end of the following year. An FPP process requires the Commerce
Commission to build an economic model to consider the actual costs to Chorus of
providing this service. Chorus will hope the number will be substantially
higher, but given we know how much it actually costs CallPlus to deliver the
same service in the market today, it’s just as likely to be much lower.

The government  has
said it will consider its options before making a decision on what to do next,
and that’s a sensible call to make. We’re coming into an election year and
trying to justify hiking the price of broadband from $34.44 a month to its
preferred range ($37.50 to $42.50) is going to take some explaining.

The good news is, it doesn’t have to. The Commission has
already given them exactly what they asked for.

UBA isn’t a single product – it’s a suite of products, and
the basic UBA service (BUBA) has indeed been priced at $10.92 per line per month.

BUBA has no contention ratio to speak of. It’s a low-cost,
entry level product that simply won’t do in this day and age for anything
beyond a basic service.

Enhanced UBA (EUBA, rhymes with tuba) offers a less
contended service. The CIR (Committed Information Rate) ranges from 40kbit/s
through to 180kbit/s for the aptly named EUBA180 product.

That level of CIR might seem woeful – and it is – but it
puts EUBA180 somewhat closer to the entry level 30/10 fibre product which the
government is using as its benchmark in the fibre world. Entry level fibre has
a CIR of 2.5Mbit/s which is a lot better than copper UBA provides.

The argument goes like this – if copper and fibre are
similar in terms of service they should be similar in terms of price, that way
customers will be able to migrate smoothly to fibre without any problem. You
won’t stay on copper because it’s just as good but cheaper – you’ll migrate as
and when you can.

EUBA180 is the closest UBA product to entry level fibre and
EUBA180’s price, as determined by the Commerce Commission today, is $14.85 per
line per month – well within the government’s price range.

The solution to both Chorus and the government’s problem is
simple – encourage all customers on to EUBA180 and the discrepancy is resolved.
Chorus will get its money, the government will get its fibre network, customers
have the pricing and capability they deserve and, most importantly in my view,
the Commerce Commission retains its independence and oversight.

Copper and fibre aren’t the same product any more than black
and white television is the same as colour. We all know that, and the service
specifications spell it out. But if we are comparing one with the other it’s
important we compare not just headline rates, but what’s actually being sold to
customers.

You could argue that EUBA180 is still less than a tenth of the CIR
of entry level fibre and that it should be one tenth the price – we’ll argue
that another day, but for now the government can claim victory and leave the
market to get on with providing better services at better prices.

 

4 replies
  1. Rural Connect
    Rural Connect says:

    The real solution is to migrate all users to UFB once the fibre passes their gate. Then Chorus will get revenue streams closer to what they planned for and costs lower than planned (the extra costs in sending techs out to connect UFB customers are not insignificant), users will not prevaricate and will be assured of picking up the connection subsidy, and taxpayers will get their investment back earlier.

    • Paul Brislen
      Paul Brislen says:

      I couldn’t agree more. If Chorus et al were doing more to attract customers this wouldn’t be the issue it is.

      However, I’m told (and John, maybe you can help me with this) that while Chorus said it would connect farmers up to RBI fibre if it passed the gate (assuming the farmer digs the trench to the gate of course), in fact Chorus has decided not to do that because of the costs of putting in a pit and parcelling off a connection.

      Instead, farmers are told they can get fixed wireless/DSL like everyone else in RBI territory.

      I think this is a massive lost opportunity if it’s true – can you confirm one way or the other?

  2. Paul Brislen
    Paul Brislen says:

    The Telco Act says the decision comes in from December 2014 so that’s the start date. The Commission can’t change that – it’s to give Chorus enough time to get its act together.

  3. Paul W
    Paul W says:

    "That won’t stop this figure coming into effect from December next year," Why so long?? Do they have to now form even more committees to work out the costings, get their slide rules out and sharpen pencils. Why can’t this come into effect at April 01 2014??

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