Vodafone and Vocus express outrage over Chorus' prices for 'unbundling' UFB

Thursday, 28 March 2019

A fierce row has broken out in the telecommunications industry after network company Chorus announced the prices at which it would allow internet providers to 'unbundle' its fibre-optic ultrafast broadband network.

Its proposed pricing was quickly labelled 'ridiculous' by Mark Callander, chief executive of the country's third-largest broadband retailer Vocus NZ, which owns the Slingshot and Orcon brands.

'Chorus have played their hand early and the Commerce Commission will now need to intervene, it's as simple as that,' Callander said.

'What Chorus has done is propose a monthly fee that when all costs are taken into account they get their desired outcome – it prevents unbundling and innovation. It's cynical at best.'

* Vodafone and Vocus would spend 'tens of millions' on unbundling**

Vodafone argues unbundling fibre-optic lines would result in more innovation, but says the prices proposed by Chorus would make it uneconomic.

Unbundling would provide an additional way for telecommunications companies to buy services from Chorus.

Instead of continuing to buy a full service from Chorus, unbundling would mean they could replace Chorus's network electronics with their own equipment, buying access only to its fibre-optic cables.

But unbundling generally only works commercially if it is priced at enough of a discount to make that investment worthwhile.

Vodafone spokeswoman Kathy Gieck agreed Chorus's proposed pricing would 'obstruct fibre unbundling from becoming a reality in New Zealand'.

'Our estimates are the average customer would pay up to $40 more per month for unbundled fibre compared to what they pay today. This behaviour is reminiscent of the old Telecom at the time of copper unbundling.

'We're prepared to work with Chorus on this, but if this is any indication of their planned approach, we believe the Government and Commission should step in now,' she said.

Spark spokesman Andrew Pirie said its initial assessment was also that the pricing proposed by Chorus would make fibre unbundling 'an uneconomic proposition'.

Chorus has defended its pricing by saying it doesn't save much money by providing telcos with access to only its basic physical infrastructure, and that it needs to be fair to smaller internet providers.

'Spark hasn't taken an active position in favour of unbundling, so we would imagine some of our competitors who have done so will have more to say on the Chorus announcement,' he added.

Vodafone and Vocus have said they want to spend 'tens of millions of dollars' unbundling Chorus' network, claiming access to the network company's raw fibre-optic lines would result in a wider variety of UFB plans for consumers, and more innovation.

However, there have been concerns that allowing large internet providers to get 'cheap' access to Chorus' basic network would disadvantage smaller internet providers and ultimately undermine retail competition.

The former National government reversed a decision to automatically regulate the price of unbundled fibre lines for that reason – meaning a battle over the pricing suggested by Chorus and the prices demanded by larger internet providers had been regarded as inevitable.

Chorus said it would offer unbundled lines from the start of next year, as required by the Government, and would charge $28.70 per month per connection, plus a flat fee of $200 per month for access to each 'fibre splitter', from which internet providers could typically access about 16 customers.

That would mean the total minimum price for each unbundled connection would be about $40. But the price would be much higher if an internet provider failed to win over the majority of customers served by each shared fibre line.

Chorus' pricing is likely to be viewed as an opening gambit, with internet providers invited to provide their feedback by May 7.

Chorus' chief customer officer Ed Hyde defended the company's starting position, saying the costs Chorus avoided by providing customers with access to only its physical network – rather than providing its full wholesale offering with its associated electronics – were 'minimal'.

The proposed pricing sought to strike a fair balance between internet providers who chose to unbundle while ensuring a 'competitive playing field' for all other internet providers, he said.

'We are also seeking to ensure Chorus' own ability to generate a return from its billions of dollars of investment in fibre, which is essential for ongoing investment and maintenance of strategically critical infrastructure.'

While he acknowledged internet providers would argue for what he described as 'even lower input costs', Chorus was confident that internet providers that were committed to providing unbundling 'would be able to do so at this price point', he said.