Chorus wins with ComCom decision allowing Chorus $38 wholesale prices, over the $34 expected.

Forums › New Zealand Broadband › Chorus wins with ComCom decision allowing Chorus $38 wholesale prices, over the $34 expected.

tehgerbil

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#175521 2-Jul-2015 14:47

So this has been dragging on for a long time, with Chorus basically having a monopoly over the copper lines the charges they demanded were deemed unreasonable and were investigated by the Commerce Commission.

ISP's in NZ predicted around $34 and subsequently configured their pricing around this figure.
That would have been $9 cheaper than the current $45 each and every person is charged for using the copper lines going to your house.
So this now means that the ISP's have to accomodate for the $4 difference between what was predicted and what Chorus can actually charge.

Link:
http://www.stuff.co.nz/business/industries/69893202/chorus-victorious-in-commerce-commission-copper-pricing-decision

Now here's what that's a steaming pile of turd..

The annoying thing here is "...The consulting firm told the Government Chorus was "at risk" of being unable to fulfil the contracts in the wake of a Commerce Commission ruling that will slash the price it can charge for access to its copper network from next December."

But how the hell can you honestly look me and say a company operating a monopoly at 17% profit in their maiden year, and 23% in the year after is going to have issues paying the UFB bills?
And why was the UFB contract awarded to them in the first place?

Their maiden profit: $103Mill from $603Mill sales in 2013.
And in 2014 they posted $148Mill from $648Mill in sales.

So my point is they're hardly struggling with a 23% profit margin?

Also the Commerce Commission ignored almost 50,000 people pleading with them to look at the wholesale price rate which would still be significantly higher than other countries even at the suggested $34!

See graph below, which is the expected ($34) vs other counties wholesale prices:

What does this mean for you and me?

Well it sends a signal to Chorus that basically they can continue to doing what they're doing. They've had a massive win with this decision, and it's sure to be reflected in their share prices.

What this means to you and I is we are going to have pay more for our broadband, I expect companies have already started to look at their plans and will probably increase prices. We've already been warned by Spark, Vodafone and others that they're going to increase their prices.

So tell me, (if you manage to make it this website, over your poor broadband connection) what do you think? Is the Commerce Commission being too lenient on Chorus, and allowing them to continue to gouge the working public over wholesale prices?

hotrok

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#1335875 2-Jul-2015 16:02

Chorus can start by putting more money into upgrading rural cabinets!

Beccara

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#1336186 3-Jul-2015 09:07

Pretty much everyone of those countries listed has a population density far,far higher than NZ bar AU and in urban areas this is still the case

Most problems are the result of previous solutions...

All comment's I make are my own personal opinion and do not in any way, shape or form reflect the views of current or former employers unless specifically stated

andrew027

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#1336279 3-Jul-2015 10:43

tehgerbil:
See graph below, which is the expected ($34) vs other counties wholesale prices:

What does this mean for you and me?

I might be missing something, but that graph appears to show a figure of $28 for New Zealand. The difference would be even greater at $34, and at $38 that red bar is going to be above the letter "p" in ULLS price for Australia" - more than twice as much as the next country (Germany).

In the short term, Spark, Vodafone, etc. will pass on this increased cost to customers. In the long term, Chorus's profits will likely continue to increase and, at some point down the track when UFB provisioning has finished and their costs decrease, they'll be laughing all the way to the bank.

dacraka

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#1336289 3-Jul-2015 10:52

Is this only for copper I guess as it says? I guess it doesn't affect fibre then, right?

afe66

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#1336298 3-Jul-2015 11:02

Bet the ISPs increase price across the board to make the individual price increase less while blaming the increase on Chorus.

A.

macuser

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#1336299 3-Jul-2015 11:02

It seems that all the good times that were caused by LLU years ago has now ended, we're dealing with a far less competitive landscape than 2-3 years ago (how many ISP's have been purchased since then? Telstraclear, Orcon, Callplus, WXC) and Chorus price hikes.

Looking forward to the next 10 years of high broadband prices in NZ.

Will this drive people to fibre? Even fibre is increasing in price, last year it was cheaper than VDSL in many cases, now it is the same.

sidefx

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#1336304 3-Jul-2015 11:06

macuser: It seems that all the good times that were caused by LLU years ago has now ended

Hmm... I'm not sure I remember LLU being so rosy - well maybe just for a year or 2; but then all the issues and confusion due to cabnetisation\FTTN happening fairly soon after, blergh.

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BigPipeNZ

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#1336308 3-Jul-2015 11:11

andrew027:
tehgerbil:
See graph below, which is the expected ($34) vs other counties wholesale prices:

What does this mean for you and me?

I might be missing something, but that graph appears to show a figure of $28 for New Zealand. The difference would be even greater at $34, and at $38 that red bar is going to be above the letter "p" in ULLS price for Australia" - more than twice as much as the next country (Germany).

In the short term, Spark, Vodafone, etc. will pass on this increased cost to customers. In the long term, Chorus's profits will likely continue to increase and, at some point down the track when UFB provisioning has finished and their costs decrease, they'll be laughing all the way to the bank.

not quite. the comparison shown in this chart is just for the price of renting the copper line (UCLL), which only forms a component of the cost of buying broadband wholesale from Chorus. Previously that cost was set at around $24

for example, selling broadband (like we do) you would pay this amount to rent the copper line and then ANOTHER amount on top ('UBA') to cover the cost of the DSLAM and various other parts. That total comes to around $38 based on this announcement.

If you have unbundled the exchange (like Callplus and VF have done) then you only pay the copper price ($28) on a monthly basis but you have to put your own DSLAMs in, which of course cost money up front.

the last year or two has seen a lot of wrangling over what the copper price should be vs what the UBA price should be etc. At one point the averaged UCLL price for was ~$24 and the UBA price was ~$21, for a total of around $45. Then UBA dropped to ~$10 so the total became ~$34. but then the Comcom decided to put the UCLL price up by $4 so the total is now $38.

If you unbundled an exchange, you don't pay the UBA price (but you do have to pay for the DSL equipment you want to install in the exchange, and sundry other costs)

It's not quite as simple as that of course, but should give you a rough idea.

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jonb

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#1336350 3-Jul-2015 12:05

I liked the proposal from a geekzoner a while ago to split the copper price into two bands - one where UFB is available band, and another where UFB is not an option. Jack up the price where UFB is available but leave the other lower.
However would probably need tweaking again when majority are on UFB, but rural copper still needs maintaining.

myfullflavour

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#1336408 3-Jul-2015 13:17

I liked the old scheme where if you were rural you paid price X and if you were urban you paid lower price Y.

BarTender

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#1336541 3-Jul-2015 16:18

jonb: I liked the proposal from a geekzoner a while ago to split the copper price into two bands - one where UFB is available band, and another where UFB is not an option. Jack up the price where UFB is available but leave the other lower.
However would probably need tweaking again when majority are on UFB, but rural copper still needs maintaining.

The issue with having a split pricing based on UFB is it would get horridly complex so quickly. What about MDU's that are in a Fibre area but the Landlord/BodyCorp say no to getting it installed, or where it's just not practical to install UFB due to the design / age of the building? All of a sudden having broadband service in those building becomes a whole lot more expensive by no fault of the resident. Worse still as the UFB build progresses the pricing calculation will need to be adjusted. Does the LFC pass that on increase to the RSP. Does the RSP then pass that cost onto the end-customer. But the customer signed up for a pricing plan of X and now you are talking about charging them X + No moving to UFB Tax.

I think a better way is to say after UFB is built you have 12 (?) months to move onto UFB unless there is a reason you can't otherwise speeds will be reduced to 2mb down max if you don't move. Then it's beholden on Chorus to ensure that their inventory is correct with addresses that can't get UFB for whatever reason (or UFB build is in flight).

It's such a minefield trying to say that you will increase costs from Chorus to the RSP as that is where the relationship is, then that price somehow gets passed onto the customers who have an agreement with the RSPs.

mattwnz

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#1336584 3-Jul-2015 18:34

jonb: I liked the proposal from a geekzoner a while ago to split the copper price into two bands - one where UFB is available band, and another where UFB is not an option. Jack up the price where UFB is available but leave the other lower.
However would probably need tweaking again when majority are on UFB, but rural copper still needs maintaining.

I totally agree with this. Why should someone is rural NZ get slow copper AND have to pay more with rural broadband caps, because the government won't pay for decent rural broadband, and telcos are cherry picking the most profitable areas, so less competition in rural areas.

sbiddle

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#1336598 3-Jul-2015 19:13

tehgerbil:
See graph below, which is the expected ($34) vs other counties wholesale prices:

What does this mean for you and me?

What does it mean? It means very little.

First off you incorrectly interpreted the graph. That shows the $28 UCLL cost of a copper connection. It is not the price of a POTS+UBA bundle which is now priced at $38

The price of an urban UCLL circuit was well under $20 a few years ago when UCLL copper was split between rural and urban. As part of the post separation agreement with the Commerce Commission this was averaged out because the Commerce Commission disagree with split urban & rural pricing and want the same access price across the country. This pretty much put an end to unbundling expansion post 2011 as the economics of it totally changed.

ISPs who factored in a $38 price misread the market and the commerce commission. In the race to the bottom they overlooked common sense and the fact a forward looking price model was very likely going to be adopted by the Commerce Commission because most big players were asking for that. A forward looking model was ALWAYS going to mean price increases in a country where fibre is being deployed in parallel with copper. This is the whole point of the model. If big players didn't want this to happen, they shouldn't have asked for a forward looking model.

Your Chorus ROI figures are wildly inaccurate as well. I'd suggest you look through their last few annual reports and the Commerce Commission ruling to see some true figures.

I completely and utterly disagree with pretty much everything you've posted, and my reasons for that are in the many other posts on this topic here so there is no point repeating these like a stuck record. I'm very critical of many things the Commerce Commission have done over the last few years, particularly in the copper and broadband space so it's good to see them do something logical for a change. All we need them to do next is actually define a regulated UBA product offering that meets the needs of internet users in 2015, not 2005.

The role of the Commerce Commission is NOT to ensure the best value for customers. Their role is to ensure regulation maintains a healthy, competitive, marketplace.