Unless you’ve been living on another planet for the last 18 months, you’ll know that the price of copper based Internet access in New Zealand had been a hot political issue. As part of the separation of Telecom into a retail company (Telecom, now Spark), and an infrastructure provider (Chorus), the Commerce Commission indicated that the cost of copper based wholesale broadband services in New Zealand delivered using the Unbundled Bitstream Access (UBA) product offering would move from a regulated price that was based off a retail minus calculation, to one that was based off a cost plus model. UBA is the regulated wholesale product used to deliver most ADSL, ADSL2+ and VDSL2 based copper broadband connections in New Zealand.
The existing UBA wholesale cost was historically set by the Commerce Commission by looking at the retail price of internet in New Zealand and deducting a % margin from this. It was a very flawed methodology, and one that arguably resulted in New Zealanders paying too much for broadband access for a number of years and restricted the growth of higher data caps. The move to a cost plus model required the Commerce Commission to establish what it believed was a fair price a for providing a wholesale UBA service.
As of the 1st December 2014 there are some very significant changes that will occur to regulated wholesale copper based broadband pricing as a result of the pricing changes set by the Commerce Commission. These changes have resulted in the averaging of prices for rental of copper lines between the exchange or cabinet and premises in both rural and urban areas, with an increase in urban areas to effectively subsidise rural users. It’s also meant a new lower price for the UBA component, with a price set by the Commerce Commission based solely off two other countries in the world – Denmark and Sweden. (I have my own views on the their methodology and the flaws with it, but discussing these isn’t the point of this post!)
**Note that the following prices are the wholesale price paid by your ISP or telecommunications provider and are regulated prices set by the Commerce Commission. They exclude GST, tail services, and all other costs that an ISP will have such as bandwidth, staff costs, marketing etc, all of which need to be added to these to set a retail price.**
The wholesale cost of a standalone POTS line (a regular phone line) remains at NZ$41.50 per month
The wholesale cost of a naked UBA DSL connection (naked ADSL, ADSL2+ or VDSL2) drops from $44.98 to $34.44 per month
The wholesale cost of the POTS phone service when combined with UBA (when your phone line and broadband are with the same provider) drops from $41.50 to $17.98 per month. With POTS phone and broadband from the same provider the total cost is to the provider is the UBA price of $34.44 + the POTS cost of $17.98 per month.
The wholesale cost of clothed UBA product (when UBA is combined with an existing POTS phone service from a different provider) increases from $21.46 to $34.44 per month. If you have a phone and broadband from different providers the total cost is $41.44 to the provider of the POTS phone service provider, and $34.44 per month to the UBA broadband provider.
One significant shift is that the “primary” product being delivered over a copper line is now deemed to be broadband, not voice, meaning that UBA is now deemed as the primary service. Regardless of whether you have a phone line or naked copper broadband, the access cost of the copper line has to be built in to the price. This means that if you have broadband and a phone, that the cost of the copper line will now be built into the UBA price, not the voice price, hence UBA costs are now the same regardless of whether you have a phone or not.
What do these changes mean for me? That’s going to depend on your individual setup.
If you’re a residential customer with a copper home phone line and broadband with the same provider, or you have a naked broadband offering, it’s likely that nothing will change. The wholesale cost of your connection will drop, but due to the highly competitive nature of the New Zealand broadband market and incredibly thin margins it’s unlikely that there will be any significant savings passed on to customers. As this new pricing has been known about since early in the year many providers have already said publically that they’ve factored these reductions into current pricing.
If you’re a residential customer who has a copper home phone line and broadband with a different provider, you’re going to be impacted. There are a lot of residential customers in the country who have their phone line with Spark, and their broadband with another provider. As explained above the UBA product will now be priced the same whether you have a phone line or not, however if you have a phone line and UBA with the same provider the voice service is provided at a discounted price. If you have these with different providers the cost of the UBA service will increase by approximately $13 per month.
A number of providers including Slingshot and Orcon (both owned by CallPlus) have contacted customers in recent days advising that as of the 1st December you will no longer be able to have your copper broadband and phone line with copper broadband with different providers. While this scenario is still possible, the costs of your broadband service would have to increase by at least $13 for them to recover these increased costs. Both Slingshot and Orcon have made the decision to not pass on a price increases to customers, but instead either force customers to move their phone line under their billing control, or let the customer move their broadband to their existing phone line provider, which in most instances will be Spark.
I’m sure in coming weeks we’ll see a lot more providers start to contact their customers and advise of these upcoming changes and present the options to them. There will clearly be many people unhappy about these changes, but you need to remember that these changes (and any possible price increases) are nothing to do with your provider – they are simply making changes as a result of the Commerce Commission pricing changes. As $13 significantly exceeds the profit margins that an ISP would typically make on a customer, it’s unlikely that any would want to simply absorb this increase.
Other related posts:
Spark Paging network shutdown – the event nobody cares about? Not quite.
UFB voice, power cuts, copper invincibility and mainstream media FUD.
New Zealand’s growing BUBA problem (AKA I feel sorry for you if you’re on a Conklin)
Comment by pab, on 23-Oct-2014 09:04
Thanks for the explanation. In my case, my copper home phone line service is provided by Spark and my work pays for my home broadband via Snap. As I see it I can expect the broadband charge to increase and I'm unsure if I can get split billing if I move me homeline to Snap - it sure doesn't appear that I can sign up for just a POTS service with Snap via their online sign-up page.
Comment by Bobdn, on 24-Oct-2014 23:04
Yes, thanks for the information. Interesting how the lower costs are not being passed onto consumers - all that sound and fury about the so called "copper tax" by the Coalition for Fair Internet Pricing and in the end the main beneficiaries appear to be companies like Vodafone, a $100,000,000,000 company - or am I missing something here?
Comment by Julian, on 2-Nov-2014 21:59
What effect will this have on low use users like pensioners whom may only use 1-3 gig a month at max. How much can they expect to pay retail for broadband?
Comment by Sandy, on 6-Nov-2014 14:25
Im one of the not very happy ones. Why has this not been in the media? Tv or newspaper? First I heard of it was when slingshot emailed me. If I don't go landline with them, they will almost double my internet charge. Sure it works out to be a dollar cheaper per month if I changed which is why I couldn't be bothered. now it looks like I'll have to.