Error in Telco review – InternetNZ, Consumer, TUANZ

Significant error in Telco review – InternetNZ, Consumer, TUANZ

7 August 2013 - Media Release
This media release is available online: http://tinyurl.com/lelkq6s

InternetNZ (Internet New Zealand Inc), TUANZ and Consumer say the government is confused by the European Union’s approach to telco policy pricing and is using a draft statement by the EU instead of the finished report.

Today’s Discussion Document says the government is following the EU approach in using the cost of Fibre to the Premises (FTTP) network as its benchmark when the EU is instead using Fibre to the Cabinet (FTTC). The difference, in economic terms, is tremendous, says TUANZ CEO, Paul Brislen.

“The Government claims that it is following the European example in treating the cost of a fibre-to-the-premises network as the cost on which monthly copper broadband prices should be based (the so-called ‘modern equivalent asset’).

“The European example doesn’t support the Discussion Document’s arguments. To the contrary, it shows that the existing New Zealand regulatory approach is the right one,” says Sue Chetwin, Chief Executive of Consumer.

The Discussion Document says:

“[the approach of using UFB] is consistent with the EU approach…. where the fibre network is identified as the obvious reference point for replacement costs for copper.” (Discussion Document, p. 53)

“The [European] Commission was unequivocal that cost-based access to copper infrastructure needed to be linked to the costs associated with fibre investment.” (Discussion Document, p. 75)

“The government is relying on the EU support to justify a jump in monthly broadband prices,” Brislen says.

“This is simply wrong,” says Jordan Carter, InternetNZ Chief Executive.

“The European draft directive is clear:

“When estimating the cost of wholesale access services that are based entirely on copper, [the regulators] should estimate the cost difference between an access product based on FttC [fibre-to-the-cabinet] and an access product based entirely on copper by making the relevant adjustments in the FttC engineering model, e.g. replacing the optical elements with efficiently priced copper elements, where appropriate.

“The comments in the Discussion Document set out above reflect out of date information, based on comments by EU Commission Vice President Kroes in a policy statement released in July 2012.

“The draft EU legislative text was released in December 2012. It says a fibre-to-the-node network should be the network used to work out the monthly price for copper – not a fibre-to-the-premises network.

“This makes complete sense, because a fibre-to-the-*premises* network is very different from a copper network. However, fibre-to-the-*node* is relevant – it’s what we have today in Chorus’s network, following the cabinetisation programme of recent years, and it’s what the Commerce Commission has to look at under today’s rules.

“This fundamental mistake explains why the proposed approach in the Discussion Document is entirely wrong. It makes no sense to use fibre-to-the-home pricing to set copper prices,” Carter says.

Consumer’s Sue Chetwin says this raises further questions.

“Why is the status quo not presented as an option in this paper? The Government is proposing radical intervention in telecommunications markets. The arguments for that don’t stack up,” the three Chief Executives conclude.

ENDS

Notes for Editors/Journalists:

The Discussion Document makes the claim of the European comparison at paras 176-177 on page 53.

It refers there to Annex C of the discussion document (page 75) which at para 2 says:

“2 The Commission was unequivocal that cost-based access to copper infrastructure needed to be linked to the costs associated with fibre investment: “the appropriate ‘modern equivalent asset’ for calculating copper access costs seems to be a fibre network: after all, no operator would today build a copper network”.”

This statement is in the policy statement from July 2012, online at http://europa.eu/rapid/press-release_MEMO-12-554_en.htm?locale=en

In the European Commission’s draft Determination, released in December 2012 and implementing the policy set out earlier that year, Recommendation 42 states:

“42. When estimating the cost of wholesale access services that are based entirely on copper, NRAs should adjust the cost calculated for the NGA network to reflect the less performant features of a copper network. For this purpose, the NRAs should consider an FttC network to be the modern efficient NGA network and should estimate the cost difference between an access product based on FttC and an access product based entirely on copper by making the relevant adjustments in the FttC engineering model, e.g. replacing the optical elements with efficiently priced copper elements, where appropriate.”

You can find the draft Directive online at http://ec.europa.eu/information_society/newsroom/cf/dae/document.cfm?doc_id=1254

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