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Telecommunications (New Regulatory Framework) Update

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Contributed by: Craig Shrive and Hamish Saunders

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Published on: October 25, 2018

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Regulatory Update – 25 October 2018

On Wednesday, Hon Kris Faafoi introduced a supplementary order paper (SOP) for the Telecommunications (New Regulatory Framework) Amendment Bill (the Bill), and announced the Government had reached an agreement with Chorus on a new (reduced) maximum price for its most commonly purchased wholesale fibre product (referred to as an "anchor product" under the Bill).

The Bill implements a new regulatory regime for fixed line fibre services – modelled on 'utility style' regulation under Part 4 of the Commerce Act. Chorus will be subject to price-quality control and information disclosure, whereas local fibre companies (LFCs) will be subject to information disclosure only.

The SOP maintains the overall framework for the Bill but proposes several changes to key features of the Bill. You can read our previous updates on the key features of the Bill here and here.

Anchor Services

The Bill as currently drafted allows regulations to declare an 'anchor' service, which Chorus must provide, at no more than the prescribed maximum price, based on the price in the UFB contracts. The purpose of the anchor service is to ensure that a voice service and a basic broadband service are available to consumers at reasonable prices, and to provide an 'anchor' on the price and quality of other fibre services.

The SOP prevents the Minister from recommending a description of an 'anchor' product in the first regulations issued under the Bill that is materially different from what is set out in Chorus' UFB contract. The likely outcome of this restriction is that the anchor product for the first regulatory period will be Chorus' 100/20 Megabits per second (Mbps) Ultra-Fast Broadband wholesale product.

This follows the Government's announcement that it has reached an agreement with Chorus on a $46 price cap for the new 'anchor' product.

Fibre Service Areas

The SOP modifies the process for how the Commerce Commission (Commission) declares a geographic area to be a 'specified fibre area', meaning an area for which Chorus may stop supplying copper services. The SOP now requires the Commission to make the determination before 1 January 2020 (even if the implementation date for the fibre regulation regime is later).

Local Fibre Companies

The Bill as previously drafted provided that LFCs (which are only subject to information disclosure) would not have to adopt input methodologies for cost of capital or quality dimensions.

The SOP removes the reference to quality dimensions, meaning that LFCs will now have to comply with input methodologies set by the Commission for quality dimensions. It is not clear how this is intended to work in practice given the LFC will not be subject to a price-quality path (ie it only discloses information about its services).

Other Amendments

The SOP also amends the ability for the Commission to grant Chorus exemptions from the line of business restrictions in sections 69R and 69S of the Act. Sections 69R and 69S impose:

  • restrictions on Chorus providing more sophisticated wholesale services (known as “above layer 2” services); and
  • restrictions on Chorus linking its wholesale service inputs together to provide an end-to-end service which resembles a retail product.

The SOP allows exemptions to be granted from the regime's implementation date (which the Commission has indicated will be after 1 January 2020). This is up to 3 years earlier than what was possible under the Bill as reported back from the select committee.

Further, the Bill clarifies that determinations by the Commission that set maximum prices or maximum revenues for regulated fibre services providers, must reflect the actual financing costs incurred by the provider from any Crown financing.

Other changes proposed in the SOP include:

  • the Commission must consider at regular intervals whether to commence an investigation into whether a particular copper fixed line service should no longer be regulated;
  • the Commission must give public notice of any intention to revoke an input methodology and give interested persons a reasonable opportunity to give their views; and
  • the telecommunications development levy that is determined by reference to a liable person's revenue now excludes revenue derived from broadcasting services.

The full SOP is accessible here, and the Minister's announcement can be found here.

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