A couple of months back, the New Zealand Commerce Commission (the telecom regulator) announced that copper prices would be drastically reduced as the result of a switch in pricing methodologies from retail minus historically to cost based. As a consequence, the wholesale copper prices were due to go down from $NZ21 to $NZ9. One of the side effects of such a drastic drop in pricing was that the whole migration plan for ultra-fast broadband switchover, part of which relied on wholesale fiber access prices being lower than copper access prices for a much better performance were understandably in jeopardy. In fact it was one of the key risks we pointed in our report on the otherwise very smart New Zealand fiber transition model in our report Can the New Zealand NGA Model be Replicated?
Today, Prime Minister John Key proposed to overturn (or ignore, I don’t quite know what the appropriate term is) the Commerce Commission’s decision. This article from the New Zealand Herald (Key’s stance on the broadband decision gob-smacking) brings in some detail, as well as some very strong negative opinion on the decision. I have to say that, distant as I am from the theater of operations, my opinion on the matter is less clear-cut.
Obviously, over-ruling a theoretically independant regulator is never a good idea, it undermines a well-needed separation of powers and is certainly not something I’d condone on principle. As the NZ Herald article points out, the decision to switch from retail minus to cost was furthermore a government decision as part of the telecoms act of 2011.
Having said that, the fact that the regulator admitted to benchmarking only two international operations to establish its costing methodology (citing the lack of comparable projects as the reason for it) and the fact that the whole process was completely disjointed from the ultra-fast broadband migration makes me think that the result (of overturning the decision) is the right one.
So I’m torn. I really find the method distasteful, and it’s not like this couldn’t have been anticipated by government and regulator alike. But I absolutely think it’s crucial that wholesale copper prices be maintained higher than wholesale fiber prices. If you have a bit of time to read ahead of you, check out the Ventura / Portland Advisors study that argues that copper 15% higher than fiber should be the reference to ensure switchover.
In other words, a typical case of the right hand not talking to the left…
Photo: Auckland City by chuckbiscuito