New fibre regime to cast 'sunlight' on Chorus, fibre companies

New fibre regime to cast 'sunlight' on Chorus, fibre companies

Sunlight to be shed on profits, service quality and more

Dr Stephen Gale (Telecommunications Commissioner)

Dr Stephen Gale (Telecommunications Commissioner)

Credit: Supplied

The Commerce Commission has released its draft decisions on the design of the new regulatory regime for fibre broadband networks.

For Chorus, the regulation comes in the shape of a revenue cap, which will limit the prices consumers pay for broadband, as well as minimum standards for service availability and network performance.

Chorus and the other local fibre companies (Northpower Fibre, Ultrafast Fibre, and Enable Networks) will also be required to publish performance measures, such as profits, quality of service, and expenditure in what is known as "sunlight" regulation.

“It’s our job to make sure critical national infrastructure, like fibre broadband networks, work for the long-term benefit of consumers," telecommunications commissioner Dr Stephen Gale said. 

"Our new regulatory regime for fibre aims to ensure quality fibre internet services are delivered to New Zealanders at an appropriate price, at the same time as incentivising providers to invest, innovate and run their networks efficiently,” 

The new regime will apply from the beginning of 2022, by which time most New Zealanders will have access to ultra-fast fibre broadband (UFB).

A new paper outlines ComCom's draft decisions on the "input methodologies" which are the building blocks of the regime. 

These include the allowed rate of return and the value of the assets on which the providers they can earn a return.

"We have also made draft decisions on the service quality dimensions that we will measure providers’ performance against. These are critical to the experience fibre consumers receive in areas like customer service, rectifying faults and the installation process,” Gale said.

The Commission has made draft decisions on three key areas since its emerging views were published earlier this year. 

These include a new way of passing through to consumers the Crown subsidy for UFB, and higher allowances for risk in the allowed rate of return. 

Chorus CEO Kate McKenzie responded by welcoming the shift towards establishing a "utility style framework" for regulation, adding that the draft was detailed and complex before outlining some initial concerns mainly around the proposed rate of return on capital invested.

"We note that the Commission’s overall approach to WACC [weighted average cost of capital] is an improvement against that of its 'Emerging Views' paper. However, the implied WACC rate for the period to FY22 is still below that required to ensure our cost of capital reflects a fair return to investors given the investment risks taken," the company said.

The Commission’s draft decision also suggested there would be no WACC increase from the 50th percentile. 

"This is at odds with all other regulated utilities in New Zealand," Chorus said. "Other international regulators have recognised the need for an uplift to encourage fibre network investment."

The draft decision also indicated a change in the Commission’s approach to the treatment of Crown financing. Chorus said it would need to review the implications of this.

Gale said feedback was welcome with submissions due by 28 January 2020. 

The Commission would then publish its final decisions on the input methodologies in mid-2020 before setting the revenue cap and minimum quality standards for Chorus and the information disclosure regime for all providers in late 2021. 

The new regulatory effort came about after Parliament amended the Telecommunications Act last November to require the Commission to develop and implement a new regulatory regime for Ultrafast Broadband project fibre providers.

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Tags regulationTelecommunicationsfibreUltrafast Broadband (UFB)UFBChorusUltrafast FibreCommerce CommissionlfcsNorthpower Fibreand Enable Networks



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