Commission consults on cost modelling UCLL and UBA services

Commission consults on approach to cost modelling the UCLL and UBA services
Issued 9 July 2014
Release No. 3

The Commerce Commission has today released a consultation paper seeking views on a number of decisions in relation to the cost models it will build to price the unbundled bitstream access (UBA) service and the unbundled copper local loop (UCLL) service.

The paper sets out the Commission’s view on the regulatory framework, the type of hypothetical replacement network it will be modelling for the UCLL and UBA services and how the Commission will address a number of key modelling decisions.

The Commission’s preliminary view is that for the UCLL service, it will model a fibre-to-the-home network, with fixed wireless in remote areas; and for the UBA service it will model costs using Chorus’ copper-based inputs. In both models we propose taking advantage of third party assets where possible.

The Commission also proposes a five year regulatory period and indicates that it will make a decision whether or not to backdate the prices it determines when releasing its draft decisions in December this year.

Since receipt of the UBA and UCLL final pricing principle (FPP) applications, the Commission has been developing the regulatory framework and the key issues and process options for building a Total Service Long Run Incremental Cost (TSLRIC) cost model for the UCLL and UBA services.

The Commission has been aided in preparing its consultation paper with feedback gained from submitters over several consultation rounds, and during several workshops attended by Chorus, Telecom, Vodafone, CallPlus and Internet NZ. The Commission has also engaged expert cost modellers TERA Consultants based in France, and expert economic advisor Professor Ingo Vogelsang.

Telecommunications Commissioner Dr Stephen Gale welcomes feedback from interested parties prior to commencing the modelling processes.

“We have been working closely with our external advisors to formulate a set of proposals on building cost models for the telecommunication services we are pricing. We now welcome input on our proposed approach and a number of key modelling decisions prior to assisting us with modelling the UCLL and UBA services. ”

To access the consultation paper, please go to http://www.comcom.govt.nz/unbundled-copper-local-loop-and-unbundled-bitstream-access-services-final-pricing-principle/

Background to the TSLRIC cost modelling of the UCLL and UBA services
The UCLL and UBA services
Access seekers who wish to offer broadband (internet) services utilising the copper network typically do so by purchasing the UCLL service or the UBA service from Chorus. These services are regulated under the Telecommunications Act 2001 (Act). An access seeker may take the UCLL service and install its own equipment in the exchange. This is often referred to as “unbundling”.

The UBA service allows an access seeker to offer a broadband service to end-users without needing to install its own bitstream equipment. Alternatively, an access seeker may take the UCLL service and install its own equipment in the exchange (ie unbundle).
The full UBA price paid by retailers is the sum of the UCLL price per line per month plus a price representing the additional costs incurred in providing the UBA service over and above the UCLL service (eg provision of a DSLAM in the exchange).

The Commission has received applications requiring it to undertake pricing review determinations in accordance with the final pricing principle (FPP) for each service.
In December 2013, the Commission published a UCLL Process and Issues paper which set out and sought the views of parties on its proposed process for the cost modelling and price review determination of the UCLL service; and a number of conceptual issues associated with the TSLRIC methodology.

In February 2014, the Commission released a UBA Process and Issues paper, which set out its preliminary view on the network to be modelled for the UBA service, and the proposed timetable for completing the FPPs for the UBA and UCLL services by 1 December 2014. The Commission also sought the views of parties on the conceptual issues associated with the TSLRIC methodology raised in the process and issues paper on the UCLL service but in relation to the UBA service.

On 3 March 2014, the Commission published a further consultation paper which sought views on the role of relativity in its price setting process; and preliminary legal views of its external legal counsel James Every-Palmer on the relevant considerations for determining the MEA for the UCLL service and the Commission’s discretion to backdate the FPP prices.

Two workshops were held, on 19 December 2013 and 28 March 2014, to assist interested parties with the submission process. On 9 April 2014, the Commission held a modelling methodology presentation for interested parties with its external consultants, TERA Consultants (TERA).

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