Price cap may carve up profits for Enable

MARTA STEEMAN AND MATT NIPPERT
Last updated 05:00 09/04/2014

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Christchurch's ultrafast broadband company Enable, owned by the Christchurch City Council, is concerned that the Commerce Commission will set prices for broadband that do not give a reasonable return.

In mid-2011 the city council decided that Enable should enter a $440 million joint venture with the Crown to build an ultrafast broadband network in Christchurch over eight years, to be completed in 2019.

Enable does not expect to make a profit from the network until 2020.

Yesterday, the country's biggest telecommunications network owner, Chorus, lost its challenge in the High Court to the commission's proposed cuts to the price of copper broadband connections.

The worry for Chorus and other telecommunications companies like Enable building a fibre network, is that low-cost copper-based broadband will dissuade consumers from switching to higher-priced ultra-fast broadband connections on their fibre networks.

In its submission to the commission Enable said it had a strong interest in the price of copper broadband services and in the principles being established for long-term regulated pricing.

"The commission has an obligation to take into account the impact its price setting outcomes have on incentives to innovate that exist for, and the risks faced by, investors in new telecommunications services that involve significant capital investment."

Enable chief executive Steve Fuller, who wrote the submission, was not available yesterday to speak about the copper and fibre pricing issue and the High Court decision.

Fuller's submission said the Government's intention was for ultrafast broadband networks to make "appropriate returns taking into account the start-up nature of the UFB [ultrafast broadband] industry."

The telecommunications industry faced the threat of "asset stranding from technical innovations", Fuller wrote.

Yesterday a consumer group welcomed the High Court ruling, saying it should eventually deliver lower prices for telecommunications users.

Telecommunications Users Association of New Zealand (Tuanz) chief executive Paul Brislen said it was a "very small" but important step. "We're a step closer to price reductions we've been expecting for three years."

The commission had decided Chorus could charge only $10.92 a month for copper broadband connections, down from $21.96. The $10.92 wholesale price is to come in from the end of this year.

Hamilton Hindin Greene analyst James Smalley said one of the issues highlighted by Chorus was that overseas surveys had found it was harder to persuade consumers to move from fast broadband to super fast broadband than to persuade then to switch from slow to fast.

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In a judgment released yesterday Justice Stephen Kos in the High Court rejected Chorus' appeal

Chorus general counsel Vanessa Oakley said: "We will be reviewing the court's findings in detail." Telecommunications Commissioner Stephen Gale said he hoped to be able to complete the final pricing review by December.

- BusinessDay

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