Chorus pushes to keep prices up

Last updated 10:37 04/02/2013

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Chorus is pulling out all the stops to prevent the Commerce Commission from slashing the price it can charge for copper-based broadband.

It said it would ask the commission to first work out the actual cost of providing those services - a potentially huge undertaking.

The commission issued a draft determination in November that recommended cutting the price Chorus should be allowed to charge for wholesale copper broadband connections by $12.53 a month to $8.93 from December 2014. It had been due to finalise that determination in June.

Chorus has estimated the price drop would cut up to $160 million off its annual earnings before interest, tax, depreciation and amortisation.

The commission usually calculates what prices companies can charge for regulated services by studying what prices companies are allowed to charge in similarly regulated markets overseas. For the copper-based broadband calculation the commission examined the Danish and Swedish markets.

But providers have the right to instead ask for the commission to carry out a full review of their costs, which is what Chorus today signalled it would do. A commission spokeswoman confirmed this would be the first time such a review had been requested.

Chorus chief executive Mark Ratcliffe said Chorus would also ask the commission to ‘‘update its policy framework’’ to ensure the success of the Government’s ultrafast broadband initiative.

Chorus has argued that cutting the wholesale price of copper-based broadband by the amount suggested by the commission could undermine the $3.5 billion UFB initiative. That is because it would make fibre-based broadband less cost-competitive in comparison with existing copper-based broadband.

The commission has previously maintained that any such policy change would be a matter for the Government to consider, rather than the commission.

Prime Minister John Key signalled that he might be prepared to intervene in November after describing the commission’s draft determination as ‘‘very problematic’’. 

The commission was unable to comment on how long it would take to carry out the full pricing review.

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