13 Sep 2013

Chorus says copper network pricing is crucial

12:20 pm on 13 September 2013

Chorus concedes that the cost of building much of the country's fibre network is greater than it had expected.

Chorus is building 70% of the ultra-fast broadband, or UFB, network.

But the company says a group set up to challenge the Government's intervention in possible prices the lines company can charge for broadband over the copper network is not taking into account the full cost of maintaining the infrastructure.

Chorus is under fire from a coalition group made up of a wide-ranging group of businesses, lobbyists, consumer and community groups from across the political spectrum.

The group, the Coalition for Fair Internet Pricing, has slammed the government's proposal to over-ride the Commerce Commission in setting the price consumers are charged for broadband over copper wires.

The watchdog wants to slash broadband prices over copper wires by 25 percent, but Chorus argues this will slash its sales which it is using to fund building 70 percent of the country's ultra fast broadband network.

The Coalition says the governments proposal will transfer 600 million dollars to Chorus to support other projects the company is undertaking.

Chorus' chief executive, Mark Ratcliffe, says the build costs of the UFB are higher but that's unconnected to what it wants to charge.

It made some estimates for the project, and had a capital structure to support it, but reduction in revenue would make that very "challenging", he says.

Most of the company's revenue currently came from its copper network, and this income from the existing business was being used for a once-in-a-generation upgrade to a fibre network.

Mr Ratcliffe says the cost of maintaining the copper network is not being taken into account by the company's critics, only the cost of broadband access over the existing network.

This cost was based on a Commerce Commission figure which did not allow for the cost of the infrastructure, which would be the subject of another pricing regime. It was quite misleading not to take the maintenance costs into account, he says.

The Government plans to over-ride the Commerce Commission in setting the price consumers are charged for broadband over copper wires.

The Coalition for Fair Internet Pricing has commissioned an independent report which found the Government's proposal will mean a transfer of $600 million from consumers to the telephone lines company, Chorus, for no benefit.

The commission wanted to cut broadband prices over copper wires by 25%.

The coalition lobby was formed by Consumer NZ, InternetNZ and the Telecommunications Users Association. It includes a range of businesses and community groups from Slingshot and Callplus to the Federation of Maori Authorities, Greypower and Rural Women.

TUANZ spokesperson Sue Chetwin said the plan amounts to a tax on all consumers that will go exclusively to one privately-owned and already profitable monopoly.

"The proposal said the price of existing copper connection should be artificially inflated to be the same as for the new fibre connections, that would be the same even if your home or your business or your school has no access to the new fibre network - this is unfair and it's wrong."

Ms Chetwin said it would be like the Government deciding that dial-up internet should cost the same as broadband - even if there were no broadband available in your community.

She said the coalition's second point relates to who sets prices for monopolies like Chorus.

Ms Chetwin said Communications and Information Technology Minister Amy Adams' proposal is that instead of an independent body, the Commerce Commission, setting the price for copper broadband, politicians and cabinet will.

Ms Chetwin said if monopoly prices need to be set they should be set by an independent body such as the Commerce Commission, not politicians who have other interests.

Other comment

Sue Chetwin, who heads Consumer NZ, said a number of other organisations, including leading telecommunications firms and business groups, strongly support the coalition but have come under considerable political pressure not to be part of its launch.

Telecommunications Users Association chief executive Paul Brislen said some of his members have also faced such pressure.

He said each of the group's within the new coalition has been contacted by a number of different organisations and companies who feel that a $600 million tax is quite outrageous.

Mr Brislen said the group is hoping that the minister will reconsider the discussion document that she's put forward.

"They need to re-install the Commerce Commissioner as the independent regulator and they need to do away with the $600 million tax on consumers."