2 Dec 2014

The copper pricing changes explained

8:39 pm on 2 December 2014

The Commerce Commission has raised the overall amount Chorus can charge for both the use of its copper lines and broadband services over those lines by $3.95 to $38.39 cents a month.

In the wake of the decision, Internet New Zealand's Andrew Cushen explains how the Commission decided on the figure it released today, and what it means for people.

What are wholesale copper charges?

The charges relate to what Chorus (the wholesaler) charges internet service providers and telcos like Spark, Vodafone, Orcon, Slingshot and Flip, for accessing their copper infrastructure which was deployed years ago by the Post Office. Those wires run down almost every street in the country and are the phone lines we have been using for decades.

The Commerce Commission has raised the overall amount Chorus can charge for both the use of its copper lines and broadband services over those lines by $3.95 to $38.39 cents a month.

The Commerce Commission has raised the overall amount Chorus can charge for both the use of its copper lines and broadband services over those lines by $3.95 to $38.39 cents a month. Photo: PHOTO NZ

Companies like Spark, Vodafone, Orcon, Slingshot and Flip purchase access to Chorus's copper and turn that into internet and phone services that households use.

Because it is a monopoly, the price that the wholesaler can charge is regulated by the Commerce Commission.

In 2011, when Telecom was split into a retail arm (Telecom) and a wholesale arm (Chorus), the Commission had to work out what Chorus's wholesale services were worth, and what price they would charge internet service providers and telcos, including Telecom (now Spark) to use those services.

The price was originally set at about $45 per customer per month.

After changes to the Telecommunications Act in 2011 - which required a new model for setting the price to be adopted - the Commission came up with a figure using international benchmarks - comparing New Zealand with other similar countries that sell similar services.

As a result of that it released what it called its interim price in 2012 which it calculated at $33.44 per customer per month.

But while Chorus argued that price was too low, retailers felt it was too high. So in 2013 the Commission embarked on a final pricing principle, recalculating the figure, based on what it would cost Chorus to build a new network in New Zealand similar to what is already there.

It then calculated what Chorus is allowed to charge based on that network build costing.

That figure, of $38.39 per customer per month, is what has been released today in the draft determination.

Impact on consumers?

Internet NZ said this decision could see broadband prices rising by up to $5 a month if the telcos have already worked the $34 price into their assumptions, and if the final cost in April is the same as that released today.

Is this the end of the matter?

No. Today's decision - which is called a draft of the final decision - is more than 950 pages of very detailed information.

Consultation with the industry and others begins now, with the final figure will be finalised around April next year. The price could go up or down.

  • Chorus shares lift on charging news
  • NZ 'lacks fibre uptake incentives'
  • Watchdog has options - Chorus
  • Chorus loses broadband appeal