New Zealand heads towards cap on Chorus fibre revenues

New Zealand’s competition body has shared its view on the value of Chorus’s fibre network, a figure that will form the basis of its move to cap its fibre revenues.

Essentially, the country’s new regulatory regime aims to link the revenues Chorus can bring in – and therefore the prices it is able to charge – with the value of the fibre asset and the costs the telco incurred in rolling it out, to ensure that the operator is receiving a fair return on investment while New Zealanders are not overpaying for their broadband. It’s a simple enough idea, but the maths is naturally up for debate.

The Commerce Commission on Thursday released a draft decision that values the Chorus fibre network at NZ$5.427 billion, which is some NZ$80 million lower than the figure Chorus came up with in March, although the watchdog said it agreed with most of the telco’s calculations.

The overall figure comprises the value of the assets Chorus uses to provide its wholesale fibre broadband services, plus a so-called financial loss asset (FLA) that compensates the telco for the losses it incurred due to rolling out the infrastructure ahead of demand. Chorus built the fibre network in partnership with government-owned Crown Infrastructure Partners (previously Crown Fibre Holdings) under the Ultra-Fast Broadband programme, incidentally.

“While we mostly agreed with Chorus’ proposed asset valuations, we considered that some infrastructure and overhead costs that have been allocated to its fibre network should more appropriately be allocated to its copper network and other parts of its business,” said Telecommunications Commissioner Tristan Gilbertson. “These types of costs should not be passed on to fibre consumers.”

The next step will see Chorus and other industry stakeholders provide feedback on the draft decision, before the Commerce Commission makes a final decision next year. However, with the new regulatory regime due to start in January 2022 – the initial revenue cap will run for a three-year period – the regulatory body will use the draft decision to set an initial value, or regulatory asset base (RAB), as it is known, on which to base the revenue cap in December.

The Commission’s moves to cap Chorus’s revenues and the price it can charge for the most popular 100 Mbps fibre product “will enable a smooth transition of prices into the new regime, while ensuring that Chorus maintains quality standards for consumers,” it said.

It’s a measured approach, as we have come to expect from New Zealand. The country is rolling out its Ultra-Fast Broadband (UFB) programme with minimal fuss, unlike many other nations, and by the end of June it was 97% complete, the fibre-to-the-premises (FTTP) network reaching 1.76 million homes and businesses. 1.15 million were connected to the network by the same date; that’s a take-up rate of 65%.

If you’re looking for balance in telecoms regulation, there are worse places to start than New Zealand.