Constraints on Chorus should stay, says NZ parliamentary committee

Report recommends against relaxing constraints on wholesale services

A select committee reviewing proposed new telecommunications in New Zealand legislation has recommended removing provisions that would have given network operator Chorus greater scope for its wholesale services.

The recommendations are contained in the Economic Development, Science and Innovation Select Committee’s report on the Telecommunications (New Regulatory Framework) Amendment Bill, introduced into NZ’s parliament in August 2017.

The report marks the latest stage in a three-year gestation of the legislation. Consultation on proposed legislative changes commenced in 2015. The government issued an options paper in July 2016 and followed this with the release of a consultation paper in February 2017 setting out details of its proposals for regulating access to the copper telephone network beyond 2020.

The current legislation prohibits Chorus’ involvement in retail activities. As introduced, the bill would have retained this restriction, but would have removed restrictions on Chorus providing more sophisticated wholesale services (known as “above Layer 2” services) and restrictions on Chorus linking its wholesale service inputs together to provide an end-to-end service resembling a retail product.

The committee has recommended retaining these restrictions, saying it considered carefully submissions both for and against repealing them.

“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’s commercial incentives,” its report said.

The committee concluded that repealing the restrictions “would leave Chorus with both the ability and incentive to expand into competitive markets, which risks distorting competition and innovation.”

However it has recommended giving the Commerce Commission the ability to provide exemptions for particular services on a case-by-case basis after the first regulatory period.

Chorus said it welcomed the exemption but said: “this does not go far enough and could delay wholesale innovation.”

Chorus also objected to suggestions in the report that pricing for Chorus’ commercial 100/20 Mbps fibre product would be set based on a price path signalled in 2014. Chorus said “this unfairly restricts our ability to recover costs and would require us to price below local fibre companies.”

The committee’s report said it understood consideration was being given to setting a maximum price based on the 2014 price path by means of a Supplementary Order Paper. It supported such a mechanism saying it “would ensure that consumers would not be subject to price shocks resulting from any significant increases to fibre prices currently in the market.”

Vodafone welcomed the committee’s recommendations on Chorus’ wholesale and anchor service pricing. CEO Russell Stanners said: “We are especially pleased the Committee has listened to the concerns we raised around relaxing line of business restrictions on Chorus and LFCs and ensuring the anchor products are set fairly and in the interests of consumers.”

Spark said it would be reviewing the committee’s report in depth, but did not expect any of the recommended changes to have a significant effect on its operations.

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The communications minister, Clare Curran, announcing return of the bill to parliament, said it would amend the Telecommunications Act 2001 to modernise it and establish a stable framework for fibre access services in New Zealand. She said the initial version had received 257 written submissions and 31 oral submissions from industry representatives and members of the public.

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