New regulatory regime for fibre broadband networks

19 November 2019
Release no. 49

New regulatory regime for fibre broadband networks taking shape

The Commerce Commission has today released its draft decisions on the design of the new regulatory regime for fibre broadband networks.

“It’s our job to make sure critical national infrastructure, like fibre broadband networks, work for the long-term benefit of consumers. Our new regulatory regime for fibre aims to ensure quality fibre internet services are delivered to New Zealanders at an appropriate price, at the same time as incentivising providers to invest, innovate and run their networks efficiently,” Telecommunications Commissioner Dr Stephen Gale said.

The new regime will apply from the beginning of 2022, by which time most New Zealanders will have access to ultra-fast fibre broadband (UFB).

For Chorus, the regulation takes the shape of a revenue cap, which will limit the prices consumers pay for broadband, as well as minimum standards for things like service availability and network performance.

Chorus and the other local fibre companies (Northpower Fibre, Ultrafast Fibre, and Enable Networks) will also be required to publish performance measures, such as profits, quality of service, and expenditure. This is colloquially known as ‘sunlight regulation’.

“This paper outlines our draft decisions on the ‘input methodologies’ – the building blocks of the regulatory regime. They include the allowed rate of return and the value of the assets on which the providers they can earn a return. We have also made draft decisions on the service quality dimensions that we will measure providers’ performance against. These are critical to the experience fibre consumers receive in areas like customer service, rectifying faults and the installation process,” Dr Gale said.

The Commission has made draft decisions on three key areas since its emerging views were published earlier this year. These include a new way of passing through to consumers the Crown subsidy for UFB, and higher allowances for risk in the allowed rate of return (specifically, an asset beta of 0.49 and a market risk premium of 7.5%).

“With consumers and businesses increasingly demanding ubiquitous, high speed internet connections to support an ever-expanding range of activities, it’s important we create a robust and enduring regulatory framework. We welcome feedback from stakeholders on our draft decisions over the coming weeks.”

The Commission will publish its final decisions on the input methodologies in mid-2020 before setting the revenue cap and minimum quality standards for Chorus and the information disclosure regime for all providers in late 2021.

The draft decisions papers can be found here.

An overview of the regulation of fibre broadband networks can be found here.

Submissions are due by 28 January 2020.

Background
The Government’s UFB initiative launched in 2009 and now aims to achieve fibre-to-the-premises to 87% of the population (including 1% private fibre) by 2022.

Rural areas of New Zealand are covered by the separate Rural Broadband Initiative which improves broadband coverage to premises in rural New Zealand where it would not be commercially cost effective to build UFB networks.

The Government’s Crown Infrastructure Partners contracted with four companies through to 2020 to build these fibre networks: Chorus and three local fibre companies (LFCs) – Northpower Fibre, Ultrafast Fibre and Enable Networks.

In November 2018, Parliament amended the Telecommunications Act to require the Commission to develop and implement a new regulatory regime for these fibre providers. The regime will be implemented from the beginning of 2022.

The regime, which involves price-quality regulation and information disclosure regulation, first requires us to determine input methodologies. These are the rules, requirements and processes underpinning the regulation. This paper sets out our draft decisions on what the input methodologies could look like.

Other features of the Telecommunications (New Regulatory Framework) Amendment Act
Alongside this work, the Commission is also creating safeguards to protect consumers as New Zealand transitions away from the copper phone and broadband network. These safeguards include that fibre is available to be installed at no cost to consumers before Chorus can choose to stop supplying copper services in neighbourhoods. The Commission is also working on a code so vulnerable consumers have an appropriate way of contacting 111 in the event of a power cut. This is because fibre landlines rely on power in the home and may not work during a power outage.

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