Price concession for unbundled fibre labelled 'pathetic' by Slingshot owner

Friday, 21 June 2019

With UFB uptake sitting above 50 per cent in most towns and cities where it is available, what goes on inside fibre cabinets is now big business.

The $3.4 billion takeover of Vodafone NZ could make it less of a good idea for the country's competition watchdog to step in and regulate the prices at which Chorus offers unbundled fibre-optic broadband, the Telecommunications Users Association has warned.

The concern has arisen because Infratril would own fractionally under half of Vodafone NZ if the takeover proceeds, while also owning a controlling stake in fellow broadband provider Trustpower.

Chorus will be required to offer internet providers unbundled fibre lines from January, but under the current rules will be allowed to set its own prices.

Vodafone and the country's third-largest broadband provider, Slingshot-owner Vocus NZ, which together have an estimated 39 per cent share of broadband connections, have agreed in principle to team up and spend tens of millions of dollars unbundling Chorus' network.

Vocus has been lobbying the Commerce Commission to intervene and set the prices that would apply through regulation.

Fibre unbundling could be a double-edged sword for competition, especially if Infratil controls Trustpower while also having a half stake in Vodafone, Tuanz boss Craig Young believes.

* Arm wrestle begins over structure of ultrafast broadband market

* Vodafone and Vocus to spend 'tens of millions' unbundling Chorus' fibre network**

Unbundling would allow the companies to invest more in their own network equipment and potentially undercut Chorus' existing wholesale service, under which Chorus is required to provide ultrafast broadband connections on the same terms to all internet providers regardless of their size.

Ultrafast broadband is being rolled out to 87 per cent of homes, but unbundling could restrict the money Chorus and other local fibre companies earn from their investment.

Vocus stepped up its lobbying on Friday, saying Chorus had only agreed to cut its proposed pricing for its fibre-lines by a 'pathetic' 15 cents a month after making an earlier offer in March that Vocus had labelled 'ridiculous'.

But Telecommunications Users Association (Tuanz) chief executive Craig Young said that if Vodafone NZ's acquisition by Infratil and Canadian partner Brookfield got the green light from the Commerce Commission, Trustpower could be expected to join the unbundling partnership.

Vodafone and Vocus say fibre unbundling would spawn innovation but the price must be right.

That block would then have a 44 per cent share of broadband connections, which would be a slightly higher market share than that held by Spark, according to Commerce Commission figures.

Infratil has said it could sell its controlling stake in Trustpower if the Commerce Commission required that to clear the takeover of Vodafone NZ.

Young said it would otherwise make sense for Vodafone and Trustpower to share more infrastructure to reduce costs.

If Vodafone, Vocus and Trustpower were able to invest as a block in so-called 'layer one' unbundling on terms that were made attractive by regulators, that could have negative implications for retail competition from smaller players, he cautioned.

'It may lead to some of Chorus' costs going up to smaller providers which makes them less competitive, so there are some real nuances in this.

'Seeing parties band together like this does become a bit of an issue.'

While unbundling was at heart a 'good thing', smaller regional internet providers in particular were quite concerned about how it could play out, he said.

'When we split Chorus off from Telecom, we did that to break up a fully-integrated provider, and what unbundling might do, if it is not done correctly, is recreate a vertical player.'

The Commerce Commission currently expects to decide whether to grant clearance for Infratil and Brookfield's purchase of Vodafone NZ by July 15, though it is common for it to delay rulings.

Assuming the continuation of current regulatory settings, which allow Chorus to set its own price for unbundled fibre lines, the regulator is widely expected to approve the takeover.

But Young's comments suggest a rethink might be needed if the commission was considering stepping in to regulate the price of unbundled fibre lines.

Chorus originally offered in March to sell unbundled lines as required by the Government from the start of next year, at a price of $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.

The per-connection fee would fall to $28.55 a month under its new offer.

Vocus NZ chief executive Mark Callander downplayed Tuanz' concerns.

'Other than some common shareholding there [would be] no linkage between Vodafone and Trustpower,' he said.

'If parties are coming together to create better products and services and to make them available on a wholesale basis, that has to be better for the small players in the market, not worse.'

Vodafone and Vocus would wholesale the service they created through unbundling Chorus' fibre lines, but Callander said he would not then expect the Commerce Commission to regulate the pricing of that wholesale offering.

'We are not a monopoly. We are just trying to get a price that is viable so we can do some value-added services and innovation,' he said.