Commission Reconfirms Fibre Input Methodology For Cost Of Capital

The Commerce Commission has today issued a letter to the telecommunications industry setting out its reasons for not reopening the fibre input methodology (IM) for cost of capital in light of the Covid-19 pandemic.

The IMs are the upfront rules, requirements and processes underpinning the new regulatory regime for fibre providers.

In light of the economic uncertainty around the impact of the Covid-19 pandemic, in July 2020 the Commission committed to reviewing whether it should re-examine the cost of capital IM due to the impacts of the pandemic, before April 2021.

The Commission’s review did not find evidence to support a need to re-examine the cost of capital IM and notes the New Zealand economy is in a stronger position than anticipated at the outset of the pandemic.

The Commission will continue to monitor developments in financial markets.

It will also be reviewing the Cost of Capital IM for the regulation of energy networks and airports under Part 4 of the Commerce Act prior to 2023. As part of this, it will consider closer to the time whether or not to also review some of the fibre IMs to ensure consistency of the IMs across regulated sectors.

The letter to industry can be found on the Commission’s website.
 

Background

The Government’s Ultra-Fast Broadband Initiative 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. These new fibre networks will provide faster and more reliable voice and broadband internet services to consumers.

Crown Infrastructure Partners contracted with four companies to build these fibre networks: Chorus and three local fibre companies – Enable Networks, Northpower Fibre, and Ultrafast Fibre.

The Commission must first determine input methodologies (IMs) which are the upfront rules, requirements and processes underpinning the regulatory regime.

The Commission then uses the IMs to set the maximum revenue that Chorus can earn from its customers and the minimum quality standards it must meet. This is referred to as price-quality regulation.

Additionally, all four fibre service providers will be required to publicly disclose information about their performance, such as on their costs, prices, profitability, revenue, and capital expenditure. This is referred to as information disclosure regulation.

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