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Lower price on copper inputs needed

Media Release 23 September 2013:

Lower price on copper inputs needed

Telecom NZ argues the input price for wholesale access to copper broadband needs to come in at the bottom end of Government’s proposed range. This would entail an access price of $37.50 per connection and of the proposed options would mean the largest price drop for consumers.

Telecom’s submission to the Review of the Telecommunications Act 2001: Discussion Document also advocates for Option 3.

This allows the Commerce Commission to continue its process of setting a cost-based wholesale price for broadband services delivered over copper, and then allows the Ministry of Business, Innovation, and Employment to adjust the wholesale price for a basic copper line, so that the combined copper wholesale price is within the Government’s $37.50-$42.50 per month indicative range.

The price could then be set by December 2014 (rather than a year later), which provides the industry with more certainty on pricing through to 2020.

“The world is changing incredibly fast. Government has committed taxpayer money toward helping Kiwis transition to fibre by supporting the rollout of the Ultra Fast Broadband network. We think that is a bold approach with enduring long-term benefits for our country,” says Telecom CEO Simon Moutter.

“Given the huge costs and benefits involved, we need to quickly find a sensible outcome that works for everyone.

“Telecom is not interested in getting bogged down in regulatory processes and simply wants certainty so we can ensure our customers have access to the best products and services, using the most appropriate technologies, in the most efficient and cost-effective way possible.

“The telecommunications industry is collectively responsible for the success of UFB and for dealing with any barriers to its success. Telecom believes there are potential solutions that could appropriately balance the competing interests involved.

“Previously, Telecom worked toward a joint industry solution from all major retail service providers, which proposed to Government a wholesale copper access price of $37.50 and requested some enhancement of UFB products to make them even more attractive to consumers.

“The $37.50 price sits at the bottom end of the Government proposed range of options and will quickly deliver savings to consumers, is a fair wholesale price and delivered on Government’s goals for the UFB rollout. We’ve argued it should be adopted as part of the current review.

“Ongoing debates about copper pricing risk distracting our industry, and customers, from the far more important questions of how, as a country, we can best take advantage of the very valuable fibre assets we are investing in. Above all else, our industry needs input pricing certainty.

Other key points of Telecom’s submission -

Telecom’s submission recognises there are no easy decisions and any policy decision results in trade-offs between competing interests. We believe there are a number of key considerations to factor in when deciding on the final option:

a. The decision must provide certainty soon - Option 3 provides the most certainty and the clearest incentives for all parties to continue to invest in fibre. In fact, Option 3 provides more certainty than the current policy settings do. Rather than waiting up to three years for the results of the pricing principle reviews, Option 3 results in a settled set of copper input prices through to 2020. That certainty will in turn let us direct our investment programmes in the right places with confidence;

b. The decision needs to be transparent – In order to be durable until 2020, the reasons for the decision need to be transparent and give the public and the industry confidence it was arrived at soundly. Any above-cost copper pricing increment needs to be limited to that which is absolutely necessary to ensure construction of the UFB networks will be completed on time, and be a modest increment at most. The further away we get from cost, the greater the risk that this increment will drive unforeseen market behaviour or structures, which in turn increases uncertainty for our industry, and;

c. The decision must be fair to customers and industry. In particular:

·         Broadband customers: Any policy changes must result in a fibre/copper product mix that is, on the whole, just as good for broadband customers as the existing mix is. If copper prices are to be adjusted upwards from the prices set by the Commerce Commission, the consumer loss created by this could be compensated for in a number of ways – a better performing entry-level fibre service; a corresponding downward-adjustment to the future price path for the entry-level fibre price; or providing retail service providers with unbundled layer 1 fibre access earlier than 2020.

·         Voice-only customers: Under all of the options proposed, input prices for broadband customers will decrease from today’s levels. However, under Options 1 and 3 in the Discussion Document, there is the potential for input prices to increase for voice-only customers – who don’t benefit from the UFB. We support the proposed mechanism for protecting these customers from any such price increase by retaining existing pricing



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