Congrats - you are subsidising Chorus shareholders by $100s of millions

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6434 posts

Uber Geek

#876208 13-Aug-2013 06:43

PaulBrislen:

Retail minus was always a con. Because the Commerce Commission chose to average retail prices across the board, Telecom simply had to keep one or two highly-priced retail plans in the market (regardless of uptake) and that would skew the playing field. For a long time the most popular plans in New Zealand were more expensive at wholesale than at retail.

Whilst I agree with the rest of your post, I don't think this part is quite correct.

The UBA calculation was done with the weighted average price of the broadband plans - meaning if few or no customers were on a plan it had little or no impact to the UBA price. There would be no point keeping a highly priced plan in the market for this purpose alone as if no customers were on it it wouldn't impact the price.

http://www.comcom.govt.nz/dmsdocument/8411
see clause 4.3.8 and 4.3.9

No, the real big crock of the UBA price calculation set by the comcom was that it included a component for 'data cost' which was rarely updated and was well above the actual cost of providing data. The more data people used, the lower the UBA price would go.

sounds good in theory, but this had the effect of giving Telecom an extremely strong economic incentive to not increase data caps.
Increasing data caps would let people use more data, but due to the way the comcom set UBA price, this would end up costing Telecom millions of dollars for every extra GB used. Orders of magnitude higher than the actual cost of providing that GB
During the period 2006-2011 datacaps barely changed at all in NZ. But since separation in 2011 (when the UBA price was locked in and so this no longer had an impact) we have seen data caps skyrocket and price points compress - no surprise since Telecom is now able to give more data without incurring this artificial penalty, and therefore will only incur the actual cost of the bandwidth used which is much lower.

The comcom/govt is squarely to blame for the existence of such low data caps in NZ - they set the economic incentives and Telecom had little choice but to follow

PaulBags

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#876235 13-Aug-2013 08:27

NonprayingMantis:
PaulBrislen:

Retail minus was always a con. Because the Commerce Commission chose to average retail prices across the board, Telecom simply had to keep one or two highly-priced retail plans in the market (regardless of uptake) and that would skew the playing field. For a long time the most popular plans in New Zealand were more expensive at wholesale than at retail.

Whilst I agree with the rest of your post, I don't think this part is quite correct.

The UBA calculation was done with the weighted average price of the broadband plans - meaning if few or no customers were on a plan it had little or no impact to the UBA price. There would be no point keeping a highly priced plan in the market for this purpose alone as if no customers were on it it wouldn't impact the price.

http://www.comcom.govt.nz/dmsdocument/8411
see clause 4.3.8 and 4.3.9

No, the real big crock of the UBA price calculation set by the comcom was that it included a component for 'data cost' which was rarely updated and was well above the actual cost of providing data. The more data people used, the lower the UBA price would go.

sounds good in theory, but this had the effect of giving Telecom an extremely strong economic incentive to not increase data caps.
Increasing data caps would let people use more data, but due to the way the comcom set UBA price, this would end up costing Telecom millions of dollars for every extra GB used. Orders of magnitude higher than the actual cost of providing that GB
During the period 2006-2011 datacaps barely changed at all in NZ. But since separation in 2011 (when the UBA price was locked in and so this no longer had an impact) we have seen data caps skyrocket and price points compress - no surprise since Telecom is now able to give more data without incurring this artificial penalty, and therefore will only incur the actual cost of the bandwidth used which is much lower.

The comcom/govt is squarely to blame for the existence of such low data caps in NZ - they set the economic incentives and Telecom had little choice but to follow

They could always have told the comcom how their decisions affected the real world, but I guess that's a choice they choose not to make.

sbiddle

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#876236 13-Aug-2013 08:28

NonprayingMantis:

The comcom/govt is squarely to blame for the existence of such low data caps in NZ - they set the economic incentives and Telecom had little choice but to follow

+1 (or that should be + 1 trillion and 1)

NonprayingMantis

6434 posts

Uber Geek

#876360 13-Aug-2013 11:16

PaulBags:
NonprayingMantis:
PaulBrislen:

Retail minus was always a con. Because the Commerce Commission chose to average retail prices across the board, Telecom simply had to keep one or two highly-priced retail plans in the market (regardless of uptake) and that would skew the playing field. For a long time the most popular plans in New Zealand were more expensive at wholesale than at retail.

Whilst I agree with the rest of your post, I don't think this part is quite correct.

The UBA calculation was done with the weighted average price of the broadband plans - meaning if few or no customers were on a plan it had little or no impact to the UBA price. There would be no point keeping a highly priced plan in the market for this purpose alone as if no customers were on it it wouldn't impact the price.

http://www.comcom.govt.nz/dmsdocument/8411
see clause 4.3.8 and 4.3.9

No, the real big crock of the UBA price calculation set by the comcom was that it included a component for 'data cost' which was rarely updated and was well above the actual cost of providing data. The more data people used, the lower the UBA price would go.

sounds good in theory, but this had the effect of giving Telecom an extremely strong economic incentive to not increase data caps.
Increasing data caps would let people use more data, but due to the way the comcom set UBA price, this would end up costing Telecom millions of dollars for every extra GB used. Orders of magnitude higher than the actual cost of providing that GB
During the period 2006-2011 datacaps barely changed at all in NZ. But since separation in 2011 (when the UBA price was locked in and so this no longer had an impact) we have seen data caps skyrocket and price points compress - no surprise since Telecom is now able to give more data without incurring this artificial penalty, and therefore will only incur the actual cost of the bandwidth used which is much lower.

The comcom/govt is squarely to blame for the existence of such low data caps in NZ - they set the economic incentives and Telecom had little choice but to follow

They could always have told the comcom how their decisions affected the real world, but I guess that's a choice they choose not to make.

what makes you think they didn't?

giollarnat

138 posts

Master Geek

#889099 3-Sep-2013 16:47

Hey, fellow Chorus-subsidisers, here's another good appraisal of the situation.

"Here's what John Key might have said: "Well,
thems the breaks. The Commission has arrived at its determination after
careful consideration. The determination was signalled in 2010. The
process has been in law since 2011 and we've been expecting it since
before Chorus was formed, following the de-merger with Telecom. No one,
including the analysts, should be surprised by this. If they are, then
they haven't done their homework."

To which an enquiring journalist might have asked: "What about the extra cost Chorus is facing on the UFB?

Key: "Well that's a bit rich. We've given Chorus $929 million interest free for 14and half years,
making it a loan worth about $1.2 billion, to build its part
of the UFB. That's a pretty generous deal agreed by both parties on commercial terms.
That's business. For Chorus to be moaning about extra costs - well
that's its problem - we acted in good faith."

Journalist: "So you're not at all worried that Chorus could fail and the UFB won't get rolled out in time?"

Key: "Not at all. Look, 18c per share is still a good dividend. Chorus is still a
good business with a captive market. It has until 2020 to get just 20
per cent of users onto its part of UFB and has from 2025 to 2036 to
repay the loan. That seems quite doable. Meanwhile it has a guaranteed
revenue stream from its existing copper network. Nothing to see here."

http://www.nzherald.co.nz/technology/news/article.cfm?c_id=5&objectid=11118623

PaulBags

809 posts

Ultimate Geek
Inactive user

#889122 3-Sep-2013 17:34

giollarnat: ... [Chorus] has until 2020 to get just 20
per cent of users onto its part of UFB ...

Could they achieve this legally by rolling up parts of their copper network and forcing customers to switch?

http://www.nzherald.co.nz/technology/news/article.cfm?c_id=5&objectid=11118623

• The fibre network won't be complete until 2020. To put up prices now while consumers wait for the new network is patently unfair.
• Having copper cheaper than fibre encourages competition and innovation - enabling consumers to enjoy the benefits of fast copper services such as VDSL which until recently have been denied most consumers here.
• The fibre network won't be available in large parts of rural New Zealand. Artificially inflating copper prices means rural customers who can't get fibre are effectively subsidising the rest of the country.
• Artificially inflating copper broadband prices is likely to have other perverse effects - such as making new mobile broadband technologies such as 4G LTE more viable, thereby also discouraging users from moving to fibre.
• New Zealand risks violating its commitments under the World Trade Organisation's (WTO) General Agreement on Trade in Services (GATS), which requires an independent regulator for all telecommunications services and measures to prevent telcos from "engaging in anti-competitive cross-subsidisation" - which is exactly what Adams is proposing.
• Fibre isn't for everyone right now, but it will be eventually as new services requiring more and more bandwidth inevitably become available. Consumers shouldn't be penalised by paying artificially inflated costs while they wait for that to happen.
But more than anything the reason why Adams's proposal is unjustified is that it doesn't lay out any empirical evidence as to why it's necessary. None. Except that Chorus's share price has dropped.

QFT.

sbiddle

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#889156 3-Sep-2013 18:25

Chris Barton is anti Chorus and was anti Telecom. Anything he writes has to be taken with a grain of salt and should contain a disclaimer.

You can pull apart a lot of what he has written really.

Fibre prices between now and 2019 will increase each year for low end plans. This has always been going to occur. High end plans will see price reductions over time time.

LTE is not a replacement for fixed line connections for the vast majority of the population. Already who thinks it is instantly shows themselves as failing to understand telco basics 101. Wireless is, and always will be, a complementary solution, not a replacement. In some areas of NZ wireless will be the RBI solution because it's simply not cost effective to deploy copper or fibre services to everybody. Those people paying more for those wireless services simply need to accept that living in the middle of nowhere and expecting the same service as a users in a metropolitan area can't always happen.

He also seems heavily confused about subsidies. He says rural users will subsidise the rest of NZ, which is a distortion of the facts. Rural are already being heavily subsidised by metropolitan users in NZ who have been subsidising unprofitable rural customers in NZ by way of the TSO levy since 2001. Their telco has to pay - so ultimately every metropolitan user in NZ is subsidising rural customers.

Sharesies

Trade NZ and US shares and funds with Sharesies (affiliate link).

ajw

1932 posts

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#889203 3-Sep-2013 19:56

After reading the article by Chris Barton I think his comments are totally correct. The government are trying to manipulate the wholesale price of copper to protect chorus shareholders.

sbiddle

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#889205 3-Sep-2013 20:00

ajw: After reading the article by Chris Barton I think his comments are totally correct. The government are trying to manipulate the wholesale price of copper to protect chorus shareholders.

If you agree copper should be cheaper I can also assume you believe fibre should be a lot cheaper?

ajw

1932 posts

Uber Geek

#889210 3-Sep-2013 20:06

I don't intend to bring fibre into the equation. It is the Commerce Commission who's job it is to issue pricing determinations, not the job of Amy Adams who didn't like the wholesale $$$ figure that the Commerce Commission came up with and by the way does Amy Adamd have previous experience in the Telecommunications industry especially in the area of a policy analyst.

sbiddle

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#889226 3-Sep-2013 20:29

ajw: I don't intend to bring fibre into the equation. It is the Commerce Commission who's job it is to issue pricing determinations, not the job of Amy Adams who didn't like the wholesale $$$ figure that the Commerce Commission came up with and by the way does Amy Adamd have previous experience in the Telecommunications industry especially in the area of a policy analyst.

Why should they be treated any differently from each other? I see it

At the end of the day wireless, fibre and copper are merely PHY layers designed to deliver a product.

The Commerce Commission have shown numerous times that they don't always get things right. It seems they're trying to make up for ripping NZers off for ~5 years due to their exceptionally poor oversight of regulated UBA offerings.

ajw

1932 posts

Uber Geek

#889230 3-Sep-2013 20:43

sbiddle:
ajw: I don't intend to bring fibre into the equation. It is the Commerce Commission who's job it is to issue pricing determinations, not the job of Amy Adams who didn't like the wholesale $$$ figure that the Commerce Commission came up with and by the way does Amy Adamd have previous experience in the Telecommunications industry especially in the area of a policy analyst.

Why should they be treated any differently from each other? I see it

At the end of the day wireless, fibre and copper are merely PHY layers designed to deliver a product.

The Commerce Commission have shown numerous times that they don't always get things right. It seems they're trying to make up for ripping NZers off for ~5 years due to their exceptionally poor oversight of regulated UBA offerings.

It was and still is politicians that mandated the Commerce Commission the role of undertaking these pricing determinations. Surely you are not suggesting that Amy Adams is now highly qualified to take over the role of the Commerce Commission and do these pricing determinations herself. It doesn't matter what political persuasion they are parliament is full of clowns.

PaulBags

809 posts

Ultimate Geek
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#889265 3-Sep-2013 21:13

sbiddle:
ajw: After reading the article by Chris Barton I think his comments are totally correct. The government are trying to manipulate the wholesale price of copper to protect chorus shareholders.

If you agree copper should be cheaper I can also assume you believe fibre should be a lot cheaper?

To me the issue isn't that copper should be cheaper than it is now per se, but that it shouldn't be held artificially high; especially if the reason is to persuade people to move to fibre when, as has been said here, residential access isn't a priority until 2015 and the whole rollout isn't scheduled for completion until 2019.

If I'm going to be punished for something then by jove I want to have actually done something, and if I haven't and I'm punished anyway then I might as well actually do something. That sentiment doesn't apply very well here, but still.

Ragnor

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#889272 3-Sep-2013 21:26

Have you considered that: Copper is likely to become more expensive to run as more people switch off to fibre because the economies of scale will be lost... the fixed costs spread over less customers.

sbiddle

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#889274 3-Sep-2013 21:28

You seem to have the same view that Consumer do

The roll-out of UFB was meant to compete with copper services so that consumers would have choice

Which is a wildly incorrect view.

UFB is ultimately a replacement for copper, it is not, and never has been planned as a product to compete with copper. It's merely a different PHY layer delivering a layer 2 and layer 3 wholesale and retail service on top.

I've yet to see a single argument from anybody as to why pricing for both should be totally independent and believe the ComCom's view is fundamentally flawed. The fact they could produce a document on fibre uptake and not even mention pricing of copper services as a factor shows their lack of understanding of the market as a whole.

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