Having your cake and eating it too (and creating a monopoly along the way)

Lost in the noise of the Telecommunications Act Review
discussion document
is a rather alarming paragraph about Chorus’s copper lines.

The review usurps the Commerce Commission’s role as
regulato
r and gives the job to the minister on the basis that the minister
wants the fibre uptake to be successful.

In order for the fibre rollout to be successful it has to
have lots of users signing up for it. Fair enough – I agree entirely with the
outcome, just not with the process by which we’re being pushed down that path.

The minister argues that in order for customers to move to
fibre the price of copper lines can’t be dramatically lower than the price of
fibre, otherwise nobody will move.

I disagree – fibre and copper aren’t the same product and
while my copper line might be adequate for my use today, by the end of this
year it’ll be straining at the edges and by the end of next year it’ll be intolerably
slow.

That’s because my kids are now both of an age where they
have serious homework and that homework is delivered online. As soon as they
get home from school they want to use the computer. My wife uses that downtime
to catch up on last night’s Shortland Street and so she too is using my
internet connection.

Copper barely copes with this. As it always has been, user
migration is dependent on there being a reason to move and content is that
reason. Fibre is not the same product as copper.

But let’s put that aside for the moment. Let’s assume the
minister’s goal is to have as many customers as possible moving to fibre and
that in order to do this we must artificially mark up the price of a copper
line.

The discussion document lays it out in just these terms. It
describes the fibre roll out as a “once-in-a-generation” upgrade and says the
real benefits to New Zealand come from those applications that use UFB speeds.
It goes so far as to quote the Alcatel-Lucent report that suggests economic
benefits of nearly $33bn over a 20-year period.

Clearly then, we need to usher users over to the fibre world
as quickly as possible for the benefit of the economy as a whole.

All of which makes me wonder why the minister is so keen to
stop that happening in those parts of the country where Chorus isn’t building
the fibre network.

Chorus has the lion’s share of the network build, but
Northpower is rolling out fibre in Northland, UltraFast Fibre is doing it in
the Waikato, Bay of Plenty region and Enable is doing its work in Christchurch.

All three Local Fibre Companies (LFCs) are ahead of
schedule. All three expect to finish sooner rather than later and all three are
signing up more customers than the average sign-up rate would suggest.

Yet the minister makes it clear in her discussion document
that Chorus will be allowed to pocket price its copper wholesale service to
compete for those customers who live outside its fibre region.

“Chorus can set wholesale prices below the regulated price
cap to match competition from fibre in those areas, if necessary to compete
effectively with the LFCs.”

We’ve already seen Chorus overbuild existing fibre networks
such as The Loop in Nelson and Inspire.Net in Palmerston North, and now it gets
to use its existing network to compete for customers against the government’s
fibre network around the country.

Surely if the drive to move to fibre is so great that Chorus
must be given a leg-up in terms of its copper pricing, the same rule should
apply in favour of the LFCs and Chorus not be allowed to compete by reducing
its copper prices?

And conversely, if it’s OK for Chorus to reduce its price in
these areas, why is it not OK for the rest of the country as well?

Don’t forget, the Telecommunications Act explicitly allows
Chorus to buy up the three smaller LFCs without triggering the Commerce
Commission’s anti-monopoly alarm. The Commission is barred from investigating
any such purchase on the grounds of lessening competition by law.

I can picture a scenario whereby Chorus depresses the market
for fibre in the three LFCs’ home territories while keeping copper prices high
for the rest of us. Once the LFCs start to struggle, Chorus can buy them up for
a song and before you know it we’ll have one network operator for the country
as a whole.

As we said during the ten-year regulatory holiday debate, we’ve
just spent a decade ensuring that one network operator play nicely with the
rest of the market, do we really want to create another monopoly asset with no
regulatory oversight?

 

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