Telco law review favours consumers over investors   15 Jul 2016

Friday 15 July 2016 01:01 PM

Telco law review favours consumers over investors, First NZ says

By Paul McBeth

July 15 (BusinessDesk) - The government's plans to rewrite legislation governing telecommunications will tilt the regulatory approach of the sector in favour of end-consumers over investors in fibre and copper networks, says broking house First NZ Capital.

Communications Minister Amy Adams this week announced plans to change the way telecommunications network operators, such as Chorus, can charge for wholesale access to their regulated services. The favoured approach is to impose a revenue cap based on an ultrafast broadband provider's regulatory asset base and price caps for basic services, which would likely be voice-only, entry-level broadband, and basic broadband products.

The government wants to have the new regime in place from 2020, with immediate regulation for Chorus because of its dominance in the national market, while other local fibre companies such as NorthPower, Ultra-Fast Fibre and Enable would only face the threat of regulation because they face more competition.

In a note on the proposals, brokerage First NZ said the government appeared wary of being overly prescriptive in its proposals, and while it tried to protect both end-users and investors post-2020, consumers came out on top.

It's "an approach that on balance appears to elevate end user requirements above that of investors in the fixed line services being regulated," First NZ said. "This is probably most evident for Chorus in the decisions being made around the imposition of a revenue cap with anchor product pricing caps, and in the apparent willingness of the government to accept asymmetric risk outcomes on returns for Chorus in the implementation of the regulatory framework."

The brokerage said investors can have more confidence that the price regulation of Chorus is moving towards a similar model to that used in the electricity sector in that "it should earn a fair rate on its asset base" although it's still unclear how long it will be before investors are certain on the outcome of the review.

"That uncertainty doesn't just impact Chorus and its investors, but impacts the broader industry including RSPs (retail service providers), the LFCs (local fibre companies) and end-users," First NZ said. "This lack of clarity and long timeframes for better visibility on outcome may also impact government initiatives such as the extension for the UFB network and RBI (rural broadband initiative), which highlights the reasons for providing more clarity sooner."

Adams launched a review of the 15-year-old Telecommunications Act last year to gauge the crossover with broadcasting and to have a look at the way network service pricing was regulated after Chorus underestimated the extent it would have to cut wholesale prices when it was carved out of Telecom Corp, now Spark New Zealand.

First NZ said the proposals still left unanswered questions about migrating customers to fibre, including who will take the lead on overseeing the shift, and what returns Chorus will be allowed to earn on its copper assets. Policymakers had missed an opportunity to undertake a cost-benefit analysis of fast-tracking migration to fibre.

The bulk of the document focused on network operations, and First NZ said the decision not to consider mobile regulation more closely would be welcomed by Spark and Sky Network Television, which is seeking to merge with Vodafone New Zealand.

Chorus shares were up 0.6 percent to $4.365 today, while Spark increased 0.1 percent to $3.705 and Sky TV advanced 0.2 percent to $4.90.

(BusinessDesk)

ends

Add a comment