Ann: GENERAL: CNU: Dr Ross Patterson: current fra

• Release Date: 17/09/13 10:51
• Summary: GENERAL: CNU: Dr Ross Patterson: current framework not appropriate
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CNU
17/09/2013 08:50
GENERAL

REL: 0850 HRS Chorus Limited (NS)

GENERAL: CNU: Dr Ross Patterson: current framework not appropriate

17 September 2013

Press Release

Dr Ross Patterson: current framework not appropriate to support transition to
fibre

In an independent report prepared for and included as part of Chorus'
submission on the Government's Discussion Document entitled "Review of the
Telecommunications Act 2001" (Discussion Document), Dr Patterson, the
previous Telecommunications Commissioner, states that the current regulatory
framework is not appropriate to support the transition to fibre.

"The ladder of investment regulatory framework that is currently in place is
designed to encourage network competition that over time will remove the
natural monopoly aspects of the access network," said Dr Patterson.

"However, the structural separation model adopted through UFB accepts that
the access network is a natural monopoly and building competing networks is
inefficient.  The two frameworks cannot co-exist efficiently."

He makes key recommendations to address the issues created by the out of date
regulatory framework, in order to achieve a more efficient delivery of fibre
through to 2020.

"A new statement should be added to the framework that makes it clear that
the UFB initiative is to replace the existing copper network, and that
outcome is for the long term benefit of end users of telecommunications
services within New Zealand," he said.

Dr Patterson also says that the uncertainty caused by a regulatory framework
that is no longer fit for purpose has led to the Government being required to
intervene on copper pricing.

In this context he recommends that UCLL and UBA prices should be set by
legislation until 2020.

"The relative pricing of copper and fibre services was a key element of the
migration strategy that was built into the contractual component of the
regulatory environment," he said.

"The contracts Crown Fibre Holdings (CFH) negotiated with the Local Fibre
Companies included a loss leader entry-level product at a wholesale price of
$37.50, deliberately set to undercut the then anticipated copper price.  The
tentative changes to UCLL and UBA pricing which the existing copper regime
may deliver would completely undermine the loss leader fibre pricing strategy
in the CFH contracts.

"The Government has made it clear that it does not intend to provide a demand
side subsidy to incentivise migration to fibre.  Under those circumstances
the only practical option is to adjust copper pricing along the lines
proposed in the Discussion Document."

Making changes along the lines of option 3 in the Discussion Document means
that  the UFB reforms will result in a large reduction in the pre UFB copper
access price for rural customers (as a consequence of UCLL averaging) and a
smaller reduction for urban customers. Provided fibre and copper prices are
"roughly equivalent" a major barrier to uptake is removed.

Dr Patterson also suggested two further changes that could be made in the
next phase of the review to apply from 1 January 2020 once the UFB build is
complete.  This includes a mandatory migration process from the end of the
build period to avoid inefficiency of two networks operating at sub-optimal
capacity and reference offers approved by the Commission.

Alongside Dr Patterson's report, the Chorus submission also includes
submissions from Richard Hooper CBE, ex-deputy Chairman of Ofcom in the UK,
and Professor Stephen Littlechild, Emeritus Professor, University of
Birmingham and the first UK Director General of Electricity Supply.

Chorus has included these independent views from three internationally
respected ex-regulators to support the development of a high quality,
predictable regulatory environment in New Zealand.

ENDS

Note for editors: Dr Ross Patterson is available for media interviews.

He can be contacted at:
Minter Ellison Rudd Watts, Wellington telephone:  +64 4 498 5000
End CA:00241190 For:CNU    Type:GENERAL    Time:2013-09-17 08:51:05