Review of the Telecommunications Act

8 August 2013

Media Statement: Mark Callander – Slingshot Chief Executive

Review of the Telecommunications Act

The Government has announced plans to maintain artificially high copper prices, effectively placing a levy of up to $150 a year on consumers to support the fibre rollout. This move is to ensure that the price consumers currently pay for copper based broadband services is kept at least as high as the price of fibre based services.

The Government believes this move will encourage fibre uptake, but I question this and believe Kiwis are being treated unfairly by bearing the cost, especially those who are unable to access fibre at this stage.

What is surprising is the Government has not called for consultation on whether this approach is the best way to promote fibre uptake. Any consultation has been focused on how the levy should be applied, which has implications for all retail Telcos, their investments in copper and most importantly the competitive landscape.

The reality is the Government’s decision will largely protect Chorus shareholders, with more than 50 percent of shares being foreign-owned, whilst also ensuring that Chorus continues to make artificially high margins on its copper products to fund its fibre rollout.

There must be a better solution to meet the collective objectives and this must become central to the review of the Act.

The current regime set in place by the Government was designed to encourage investment in the local loop and unbundling (LLU). These investments in unbundling have been made by the larger competitors to Telecom, reducing the charges paid by them to Chorus and enabling the delivery of a higher quality of broadband and voice services at lower prices for consumers.

Copper competition has been critical in driving improved performance and better priced broadband for Kiwis. As the largest investor in placing their own equipment in exchanges, the CallPlus Group’s business division, CallPlus, has unbundled over 180 exchanges throughout the country, reaching over 700,000 lines.

According to one of the options being considered by the Government, CallPlus could potentially be paying Chorus an additional $14.49 per month for these copper lines, which equates to a 76 percent increase. It goes without saying the impact on our investment would be significant, not to mention the impact on competition.

If the Government applies the levy to the unbundling fee Chorus charges, this will effectively hit Telecom’s key competitors and have a serious impact on competition in the market. This is also concerning due the fact that in the review there is a proposed carve out for ‘voice only’ services of which Telecom is the largest user. This means that any increase in copper LLU charges from Chorus would not apply to Telecom which further distorts the competitive landscape.

The real issues for fibre uptake are unlocking the benefits that fibre can deliver to consumers, educating consumers and ensuring a smooth installation process. There are significant bottlenecks which need to be addressed, such as access to content, the pending threat of Telecom and Vodafone owning the second international cable and even the risk that mobile LTE delivers an alternative service to fibre, which is a reality based on the entry level product specifications. However, most of these issues are deferred to 2020 which will be too late, in my opinion.

Research has shown that copper-based broadband will remain the key delivery method through to 2020 and beyond. Even the more optimistic commentators forecast that at the end of 2019 the majority of Kiwis will still be on copper not fibre. Let’s accept the fact that fibre won’t be available as a mass market product in the consumer market for several years, and even when it is, the $100 monthly price tag for a real fibre experience may well prove too steep for many households.

ENDS

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