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Commission Completes Input Methodologies By Finalising Approach To Valuing Fibre Providers’ Financial Loss

The Commerce Commission has released its final decision on its approach to determining the value of the financial loss asset for fibre service providers under the new fibre regulatory regime.

The financial loss asset captures the unrecovered returns of Chorus and the local fibre companies (Enable Networks, Northpower and Ultrafast Fibre) during the initial period of operating Ultra-Fast Broadband (UFB) networks before demand met supply. Once the new regime is implemented in January 2022, it will form part of the regulatory asset base on which fibre providers earn returns.

“As signalled earlier this year, we have decided to adopt a discounted cash flow approach to valuing the financial loss asset, rather than the building blocks method we initially proposed. Submitters, including fibre companies and financial analysts, recognised this would help make the calculations easier to understand and therefore provide greater transparency when we set Chorus’ price-quality path and the broader information disclosure regulations next year,” Telecommunications Commissioner Tristan Gilbertson says.

“We have also decided that pre-2011 investments can be included in the discounted cash flow calculation. We have put safeguards in place to address the risk of windfall gains or over-recovery and are satisfied they will ensure these pre-2011 costs are allocated appropriately.”

The Commission published its core decisions on the key regulatory rules, requirements and processes (known as input methodologies) for the new fibre regime in October. Today’s decision on how to value the financial loss asset concludes the input methodologies process.

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“This work started in 2018 and has been a significant undertaking for the Commission and industry stakeholders. I want to extend my thanks to everyone who has worked with us to develop the fibre input methodologies and ensure that fibre providers are properly incentivised to invest, innovate and deliver high quality services that New Zealanders can rely on,” Mr Gilbertson says.

“Having put these regulatory rules in place, we are now turning our attention to applying them to set the revenue cap and minimum quality standards for Chorus and the information disclosure regime for all fibre providers.”

More information on the Commission’s approach to valuing the financial loss asset and the legal determinations that give effect to its input methodology decisions can be found here.

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