Committee recommends against easing restrictions on Chorus' business

Easing restrictions on Chorus' line of business would allow it too close to retailing, a parliamentary committee says. Photo / File

Removing restrictions on the services provided by Chorus would risk distorting competition in the telecommunications market, a parliamentary committee says.

In its report on the Telecommunications (New Regulatory Framework) Amendment Bill, the Economic Development, Science and Innovation Select Committee recommended retaining some restrictions on Chorus, which owns most of the country's fibre network.

Line-of-business restrictions are the provisions in the Telecommunications Act that limit the kind of activities that Chorus can be involved in.

The main restriction in the Act is a prohibition on Chorus' involvement in retail activities.
The bill as it stands would retain that restriction but would remove restrictions on Chorus providing more sophisticated wholesale services and linking its wholesale services together to provide something resembling a retail product, the report said.

"We note that the policy rationale for relaxing the restrictions is to encourage innovation. On balance, however, we consider that the potential benefits in terms of innovation and efficiency are outweighed by potential disadvantages from changing Chorus' commercial incentives.

"Repealing the restrictions would leave Chorus with the ability and incentive to expand into competitive markets, which risks distorting competition and innovation," the report said.

Instead, the committee recommended retaining existing line of business restrictions but giving the Commerce Commission the ability to provide exemptions for particular services on a case-by-case basis after the first regulatory period.

Spark warned last month that broadband prices could increase by up to $8 a month for every household and business in the country if the bill passed unaltered.

The bill, introduced by the previous National government, will establish a new utility-style regulatory framework for wholesale fibre-based services similar to that of the electricity lines industry.

Under the changes, telecommunications infrastructure provider Chorus will be subject to a revenue cap. That aims to give the company flexibility in setting the price for most of its products but ensures it does not earn excessive returns on its fibre assets.

Spark said it supported a shift to a new regulatory model, but Chorus was gaining concessions most New Zealand businesses would never enjoy – a guaranteed return on its fibre access network and annual price increases in a sector characterised by annual retail price drops.

John Wesley-Smith, Spark's general manager of regulatory affairs, told the committee the bill did not balance Chorus' interests with those of the rest of the industry and their customers.

He warned that it could result in a $6 to $8 a month price increase for every New Zealand home and business relative to what they paid now.

Vocus Communications, whose retail brands include Slingshot, Orcon and Flip, labelled the combination of regulating only entry-level services and removing restrictions on Chorus' lines of business a "toxic cocktail" for competitors.

"Chorus will be effectively retailing in all but name," it said in its submission to the committee.

The new regulatory framework is expected to be in place from 2020, when the first UFB arrangements end.