Chorus charge $12 too high - Spark

  • Breaking
  • 24/02/2015

Telco retailer Spark says the Commerce Commission has overestimated what it costs network provider Chorus to supply internet and phone services by at least $12 per customer, per month.

In a submission to the commission released today, Spark claims the proposed maximum charge per connection of $38.39 – $28.22 for unbundled copper local loop (UCLL) network service and $10.17 for wholesale broadband – is 80 percent higher than the median charge in the EU and Australia.

"It does not cost 80 percent more to provide landline access in New Zealand than everywhere else on a like-for-like basis," says Spark general manager of regulatory affairs John Wesley-Smith.

"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."

The company sought an expert review of the commission's price modelling, which it says found four major flaws:

  • It did not take into account modern 'fixed wireless access' technology, that could cut costs to non-urban customers by 37 percent;
  • It compensated Chorus for lead-in costs, which in reality are funded by end-users;
  • Assumed a newly built network wouldn't re-use existing trenches or share costs with other providers;
  • Ignored projections for population growth and the trend towards high-density living.

Rather than costing Chorus $28.22 a month to provide UCLL access, as the commission has estimated, Spark says it would be no more than $16.64.

"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," says Mr Wesley-Smith.

Rival telco Vodafone listed similar concerns in its submission to the Commerce Commission.

Last year the commission initially proposed lowering the total Chorus could charge retail providers down from $44.98 to $34.44 per customer, but then lifted it to $38.39. Many phone and broadband providers had already adjusted prices downwards in anticipation of the initial lower rate, and subsequently raised prices between $2.50 and $5 a month to cover the new costs.

The commission won't finalise the new pricing until later this year, but may backdate it to December 1, 2014. Because of this, Spark says the early price rise was necessary. If the commission decides against backdating the new charges, Mr Wesley-Smith says Spark will pass the savings back on to its customers.

In its submission, CallPlus – which owns the Orcon, Slingshot and Flip brands – says it had modelled its pricing on UCLL access at $23.52, as it has been since 2012, not $28.22.

"The commission should carefully consider the impact of the changes… and review the price increases as well as consider ways to mitigate the competitive disruption this could cause and allow time for the market to adjust to the new circumstances," the company writes.

"CallPlus would suggest that an independent audit is necessary to identify underlying issues or inadequacies in order that the commission can make some form of efficiency adjustment."

InternetNZ, Consumer and the Telecommunications Users Association of New Zealand made a joint submission, in which they argued backdating the price rise will cost customers $130 million, and expressed concern at the speed the decision was being implemented.

"As guardians of consumers, we remain firmly opposed to the commission's choice to prioritise speed (and earlier certainty although we doubt that would happen) ahead of getting-it-right. We do not see that as in consumers' interests… For every dollar that the monthly price goes up or down in the final FPP prices, the impact is around $140 million, given a five-year regulatory period."

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