Chorus on price 'tightrope'

18:42, Feb 04 2013

Chorus may succeed in getting the Commerce Commission to reduce proposed cuts in the wholesale price of copper-based broadband by 25 to 50 per cent, analyst IDC believes.

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.

Chorus has pulled out all the stops to prevent the price cut, asking the commission to carry out its first full review of the costs it faced providing the service.

IDC Research analyst Glen Saunders expected the commission would eventually settle on a price of between $12 and $15 a month.

Chorus was treading a tightrope, he said. A low price threatened its revenues, but if the commission left the wholesale broadband price high, that could trigger Telecom to join its rivals and unbundle Chorus' phone exchanges once legislation allowed that in 2014.

Chorus has estimated the commission's proposed $12.53 monthly price cut would slash 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. In the case of the draft broadband determination that was based on prices in Denmark and Sweden.

But providers have the right to ask for the commission to do a full review of their costs, which is what Chorus has now signalled it will do.

Labour communications spokesman Clare Curran said Chorus' decision amounted to a deliberate delaying tactic and a "blow to Kiwi consumers".

However, Saunders said he believed Chorus would be professional about quickly supplying the commission with data about its costs. The commission appeared to have anticipated its request.

Telecommunications commissioner Stephen Gale said late last year finding good information about the cost of providing broadband should not be especially onerous.

Chorus chief executive Mark Ratcliffe also said the commission's "policy framework" should be updated 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 in November 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 was unable to comment on how long it would take to carry out the full pricing review.

Chorus shares closed up 3 cents at $2.88. Fairfax NZ

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