Broadband hikes unlikely after wholesale price decision

Workers installing ultra-fast broadband cabling in Whanganui. Photo / Stuart Munro.

Broadband users appear unlikely to see any immediate changes to their monthly bills after the Commerce Commission announced its latest draft decision on the wholesale pricing of access to the copper wire network.

Spark New Zealand, the country's biggest telecommunications provider, has this morning affirmed annual guidance after the Commerce Commission today said regulated pricing on Chorus's copper line network would largely be unchanged.

The Auckland-based company, which is Chorus's biggest customer, said 2015 financial guidance for low single digit growth in earnings before interest, tax, depreciation and amortisation and for a low single digit decline in revenue was unchanged.

The regulator proposes setting the total price Chorus can charge for wholesale broadband services at an average $38.43 per month over the next five years, largely in line with the $38.39 price established in the benchmarking process which came into effect on December 1.

The Telecommunications Users Association - which represents big users - said the Commerce Commission latest draft decision on wholesale copper charges had provided a mixed bag of results for users.

"Users will see no benefit in their monthly bills from telecommunications service providers given that the price set for monthly access remains basically unchanged from the previous draft decision," said TUANZ chief executive Craig Young.

"Users have already seen the effect of the increase of the latest decisions over the benchmarked initial price when it was released at the end of last year. TUANZ had submitted with other interested parties that we believed the price should be lower than had been announced by the Commission last December and therefore lower than announced today.

"For the significant number of people who will continue to receive their broadband over the copper network over the next 5 years, and especially those users in rural New Zealand who will not have fibre access as part of UFB, this announcement disappointingly means no likelihood of reduction in monthly broadband charges" said Young.

TUANZ is pleased that the Commerce Commission has announced their preliminary decision not to backdate the changes to the copper access prices once finalised, which if implemented could have added more cost and uncertainty to users.

Spark welcomed the regulator's split decision not to backdate the new pricing, and warned if the commission changes its mind that will "create more upward pressure on retail prices." Spark is scheduled to report annual earnings on August 21.

"While the commission has slightly reduced first-year charges from its earlier draft position, this decision (if finalised) would still mean wholesale line charges in New Zealand are around 70 percent higher than comparable countries," chief executive Simon Moutter said. "Around half the monthly cost for broadband goes into line charges, so the Commerce Commission's decision has a big impact on what consumers and businesses pay for their broadband."

Spark hiked its retail prices earlier this year in response to the commission's ruling to set Chorus's prices using international benchmarks, having previously said it had already cut prices in anticipation of lower wholesale costs.

Read the full Commerce Commission decision here:

See a Commerce Commission infographic explaining today's decision here:

The company today said it estimates copper input costs will increase by about $42 million on an annualised basis from the regulator's earlier ruling.

The Commerce Commission embarked on a more fulsome review of Chorus's pricing, known as a final pricing principle, after the network operator disputed the findings of the initial pricing principle, which used international benchmarks to set the price.

Telecommunications commissioner Stephen Gale today said while the modelled price was similar to that found using international benchmarks, "New Zealand's local loop network is unique" and it was "clear that our dispersed population is a significant cost factor."

Spark had been rallying its customers to lobby the commission for cheaper wholesale prices, something the regulator welcomed, while noting it reiterated the company's submission over the "apparent disparity between charges in New Zealand and in Europe."

The company's shares last traded at $2.785, and have dropped 11 percent this year.

-with John Drinnan