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Consultation Open On Chorus’ Proposal To Spend $1.6 Billion During First Period Of New Fibre Regulatory Regime

The Commerce Commission is consulting on Chorus’ proposal to spend $1.6 billion over the first three years of the new fibre regulatory regime.

Under the new regime, Chorus will be subject to price-quality regulation. This means the Commission sets the maximum revenue Chorus can earn from its customers and the minimum quality standards it must meet. Any expenditure proposed by Chorus and approved by the Commission will help determine the revenue Chorus can recover from retail service providers who use its network to sell broadband services to homes and businesses. These costs are ultimately passed onto consumers via their retail bills.

In its proposal for its first regulatory period from 1 January 2022 to 31 December 2024, Chorus is seeking approval to invest $983 million on network extensions, installations and to sustain service quality. This is a 44% reduction compared to what Chorus spent in 2020. Chorus is also proposing to spend $599 million to operate its network over the same period. This is a 17% increase in spending compared to what it spent in 2020.

The Commission will assess Chorus’ proposal against the Chorus capex input methodologies set by the Commission in 2020 that underpin how the regulatory regime treats capital spending.

“We want to hear from stakeholders on whether Chorus’ proposed spending is prudent and efficient, and whether it reflects good industry practice. As part of our consideration, we will use stakeholder views to help us identify particular areas of focus,” Telecommunications Commissioner Tristan Gilbertson says.

“In particular, we are interested in feedback on Chorus’ proposed spending in areas highlighted in the report from its external expert CutlerMerz. This includes its proposed spending on areas such as customer connections, innovation, and business IT to improve customer experience.”

A copy of Chorus’ proposal documentation and the Commission’s consultation document are available on the Commission’s website.

Submissions can be made through the Commission’s submission portal. Submissions close on Friday 12 March 2021. The Commission will make its draft decision in May 2021 and its final decision in September 2021, before finalising Chorus’ first price-quality path in November 2021.

Stakeholders also have an opportunity to provide views on Chorus’ proposed quality measures and standards at a Commission-run quality workshop on Friday 26 February. More information is available here.

The Commission is also consulting on the role of information disclosure and price-quality regulation in promoting competition in telecommunications markets through an online survey. Survey responses are due by Thursday 25 February. 

Background

The Government’s Ultra-Fast Broadband Initiative aims to achieve fibre-to-the-premises to 87% of the population (including 1% private fibre) by 2022. Rural areas of New Zealand are covered by the separate Rural Broadband Initiative. These new fibre networks will provide faster and more reliable voice and broadband internet services to consumers.

The Government’s Crown Infrastructure Partners contracted with four companies to build these fibre networks: Chorus and three local fibre companies – Enable Networks, Northpower Fibre, and Ultrafast Fibre.

Under the new regulatory regime in Part 6 of the Telecommunications Act, all four fibre service providers will be required to publicly disclose information about their performance, such as on their costs, prices, profitability, revenue, and capital expenditure. This is intended to shine a light on their performance for stakeholders and consumers. This is referred to as information disclosure regulation.

Additionally, the Commission will set the maximum revenue that Chorus can earn from its customers and the minimum quality standards it must meet. This is referred to as price-quality regulation.

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