Media release - Commerce Commission seeks further feedback for UBA price review

Issued 13 August 2013

Release No. 9

The Commerce Commission has today released an update paper on matters relevant to its price review of the unbundled bitstream access (UBA) service. The UBA price review started last year and the Commission expects to make a final decision in late October. Under current legislation, the price will apply from 1 December 2014.

This update paper follow’s the Government’s release last week of a discussion paper on the review of the Telecommunications Act 2001,  in particular of copper network pricing principles. The UBA price review remains relevant in that review.

Today’s paper updates the Commission’s approach to establishing a plausible range for the UBA price from a small benchmark set. The Act requires the UBA price to be based on international benchmarking. Last December the Commission identified only two countries—Denmark and Sweden—that apply the appropriate pricing approach. The Commission is considering more benchmark countries but the set is likely to remain small.

“We have been exploring alternative ways of estimating the UBA price from a small benchmark set, other than just taking the simple average,” said Dr Stephen Gale, Telecommunications Commissioner, “as well as determining the remaining scope for error.”

The paper also updates the Commission’s approach to applying section 18 of the Act, following amendments to the Act in 2011. The Commission’s current intention is to adopt a price somewhat higher in the plausible range to minimise the risk to investment incentives. In reviewing the UBA price, the new section 18(2A) requires the Commission to consider the incentives and risks facing investors in major new telecommunications infrastructure, most obviously in the ultra-fast broadband (UFB) project.

“In the December draft decision, we sought submissions on the application of section 18, and have discussed these at a recent industry conference on the UBA price” said Dr Gale. “Given the possible effects on the demand risks facing fibre companies and delaying the benefits of UFB, it’s important that we don’t under-estimate copper-based service prices.”

“And given the significance of the UFB project, we are keen to get industry views on this update before making our final UBA price determination.”

Finally, the paper updates the two original benchmark price points in the draft determination, which now stand at NZ$8.91 and NZ$10.92 per month for Denmark and Sweden respectively.

In parallel with this paper, the Commission is releasing advice that it has drawn on from Professor Ingo Vogelsang. The Commission invites submissions from interested parties on its views, and the views presented in Professor Vogelsang’s paper, by 5pm on Tuesday, 3 September 2013. The papers can be found on the Commission’s website at: www.comcom.govt.nz/uba-benchmarking-review/
 
Background
Unbundled bitstream access is a service that allows telecommunications companies to supply broadband services to customers without the need to replicate Chorus’ electronics or software.

Amendments to the Telecommunications Act 2001 by the Telecommunications Amendment (TSO, Broadband, and Other Matters) Act 2011 froze the prices that apply to UBA through to 30 November 2014. The Amendment Act also required the Commission to calculate new, costbased, prices for the UBA service to have effect from 1 December 2014.

The total price for the UBA service is the aggregate of the unbundled copper local loop (UCLL) and the additional costs incurred in providing the UBA service. The UCLL price was updated on 3 December 2013 to $23.52. The UBA price review therefore only requires the determination of the additional costs of providing the UBA service.

Section 19 of the Act requires the Commission to set the UBA price that it considers best gives effect to the purpose set out in section 18 of the Act, which is to promote competition in telecommunications markets for the long-term benefit of end-users.

The Commission released its draft decision for the UBA price review in December 2012, setting the price for the additional cost of providing the UBA service at $8.93, or a total monthly price of $32.45 (UCLL + UBA).

Section 18 sets out the relevant considerations in assessing the impacts on competition of the UBA price review determination. Section 18(2) requires consideration of the efficiencies (both static and dynamic) that will result from the determination. Section 18(2A) specifically requires consideration of the incentives to innovate that exist for, and the risks faced by, investors in new telecommunications services that involve significant capital investment and that offer capabilities not available from established services.

ENDS

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