Chris Barton: Price of copper, up or down?

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A copper exchange. Photo / File
A copper exchange. Photo / File

As everyone knows, the underlying purpose of our Telecommunications Act is to have a properly competitive market that benefits us, the consumers, for generations to come. To which, as a hapless telecommunications consumer, it's tempting to respond: Fat chance of that ever happening.

The puzzling aspect of this goal is that in the process of enacting the legislation, the consumer's voice is never even sought, let alone heard. The latest example of this absence is in the current discussion called by newly appointed telecommunications commissioner Stephen Gale, with assorted telecommunications industry folk, over whether to reduce the wholesale price of copper.

While there is plenty of huffing and puffing from industry - Chorus, TelstraClear, Vodafone Telecom, CallPlus and others including Chorus shareholders' representative Harbour Asset Management - there's no independent representation for consumers.

The absence reflects the lack of a consumer body to speak on telecommunications matters - a role that normally falls on the industry organisation TUANZ - but it's also an indictment on our Commerce Commission. Why is it that in legislation designed to benefit consumers, are those consumers so invisible?

In the current debate Chorus is calling long and loud for the commissioner not to reduce copper pricing, as signalled in the Commission's preliminary decision on the matter. "Investors cannot understand the rationale for reducing copper pricing at the same time that taxpayers are supporting a Government backed programme of investment in fibre," says of Chorus chairman Sue Sheldon. To which consumers, if they were present, might respond: "Investors might not see the rationale Sue, but we certainly do. It means cheaper prices for us, which we think is fair given the cost of copper services has been reducing for some time."

Consumers might also point out that the argument that reducing the price of copper will make fibre less attractive is nuts. Bizarrely, what Chorus and others are really saying is that even though copper is less expensive it should be increased in price - that consumers should pay more for copper for the next six years to prod them to take up fibre when it arrives. What happened to consumer choice? What happened to the free market? As others in the discussion pointed out, such logic is blatantly self-serving.

"The government has contracted with Chorus and Local Fibre Companies to bring forward investment in fibre," said Vodafone's Chris Abbott. "It has not changed the Act to artificially depress copper investment in favour of fibre, or artificially support Chorus over the other Local Fibre Companies."

Which gets to the nub of the problem. Chorus's copper network is a competitive pressure on Chorus's new fibre network. It's a situation which puts the company in something of a pickle. On the one hand it wants consumers to move to the brave new world of fibre, but on the other it wants to milk as much as it can from its existing copper network. And therein lies the problem. For most people what the copper network provides in broadband services at present is generally good enough. If it got a little bit cheaper, it would be even better.

Add to that even faster services using VDSL technology that are gradually entering the market and it's clear from a consumer point of view that copper will continue to have a bright future. Many forget these benefits for consumers are relatively recent and have come about through the unbundling of the copper network, which has allowed for competing services.

"Quite clearly the competition that we have seen to date under the Act has been highly beneficial in both the short and the long-term for end users," says commissioner Anita Mazzoleni "End users now have much better prices. Data caps are there but they're notional rather than real, and we have much better quality of service... So, it's those benefits from competition that we must have regard to."

As she points out, the new fibre network is a much longer term proposition - one that if everything goes according to plan will still only have 20 to 25 per cent uptake by 2019. "Only a limited percentage of consumers need or want the benefits that fibre offers," says Vodafone's David Diprose. "Copper will be the predominant access technology for a number of years to come."

Andrew Bascand from Harbour Asset Management, which manages "a significant chunk" of capital for investors in Telecom, Chorus and other telcos, is one of the louder voices calling for an increase in copper prices to drive the migration to fibre. "A failure to provide, in our view, appropriate price signals for copper will have second round effects on investment broadly in the sector."

What he's really saying is that a reduced copper price will result in reduced revenue and a reduced share price for his investors - a wealth transfer to consumers for a change. It's also a bit rich to argue that Chorus investors shouldn't have to take the effects of a more competitive market on the chin when they're enjoying the benefit $929 million in taxpayer financing for company's new fibre network currently being rolled out.

The Telecommunications Act does say "consideration must be given" to the risks faced by investors in new telecommunications services that involve significant capital investment, and that those services must offer capabilities not available from established services. But it's hard to see those considerations can have much effect when the new fibre investment, hugely subsidised by government, is predicated on just 20 per cent uptake after six years. From a consumer's point of view the real question for many is where exactly are the services that require the faster fibre bandwidth?

It's worth noting too that the other local fibre companies like Northpower Fibre and Ultrafast Fibre aren't bleating like Chorus. They're happy enough with the contracted prices set for fibre services and seem confident in their ability to compete with Chorus's copper. From a consumer's point of view, competition between fibre and copper can only be a good thing - delivering better pricing and more choice. Let's hope the Commission, when it delivers its decision on copper pricing later this month, holds its nerve and continues to drive competition in a market that is, at last, beginning to deliver long term benefit for consumers.

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