Revised Process For Implementing New Regulatory Regime For Chorus

The Commerce Commission has released papers outlining its approach to determining Chorus’ initial price-quality regulatory asset base (PQ RAB) and price-quality path (PQ) under the new regulatory regime for fibre providers.

Chorus’ PQ RAB is the value of its regulated fibre network, including an allowance for the financial losses made during the initial period of operating Ultra-Fast Broadband (UFB) networks. It is used to set the maximum revenue Chorus can earn from its customers when supplying regulated services.

In late March 2021, Chorus submitted its initial PQ RAB proposal and associated modelling to the Commission.

Telecommunications Commissioner Tristan Gilbertson said that since receiving Chorus’ proposal, the Commission has identified the need to update the indicative process it set out in September 2020.

“The process paper we have issued today aims to provide a pathway of increasing certainty for all stakeholders as we move into the final stages of determining Chorus’ initial PQ RAB and price-quality path,” Mr Gilbertson said.

“The updated process better meets the aims of setting the initial PQ RAB and allows us to continue with our planned consultation on our PQ path.”

In addition to the process paper, the Commission has published an initial PQ RAB consultation paper, which seeks feedback on aspects of Chorus’ proposal that the Commission plans to scrutinise further.

“We are interested in hearing stakeholders’ views on where we should focus our scrutiny. Particular areas we have identified include: the direct attribution of assets to the UFB rollout; the allocation of shared assets created before the UFB rollout; and revenue and operating costs allocated to UFB during the pre-implementation period to the new regime;” Mr Gilbertson said.

Submissions on the consultation paper will be used to help inform the Commission’s draft decision on Chorus’ initial PQ RAB in August 2021. This will then be used as an input to its final PQ decision in November 2021.

The Commission remains on track to deliver the next steps in the process as follows:

• Draft PQ decision for Chorus and draft ID decision for all fibre providers on 27 May 2021.
• Draft decision on Chorus’ initial PQ RAB in August 2021.
• Final PQ decision for Chorus in November 2021.
• Final initial PQ RAB decision for Chorus in 2022 (with any differences between the draft and final PQ RABs to be addressed in the Commission’s second PQ decision in 2024).

The process update paper, Chorus’ initial PQ RAB proposal consultation paper and notices of intention for potential input methodology (IM) amendments the Commission plans to make are available on the Commission’s website.

Submissions on Chorus’ initial PQ RAB proposal consultation paper can be made through the submission portal. Submissions close at 5pm on Friday 28 May. 
 

Background

The Government’s UFB 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.

Under the new regulatory regime, which is similar to how the Commission regulates energy networks and airports, the Commission will 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.

The regime first requires the Commission to determine input methodologies (IMs) which are the upfront rules, requirements and processes underpinning the regulatory regime. The IMs set out the rules for how each initial regulatory asset base (RAB) must be calculated. Chorus has provided the Commission with an initial PQ RAB proposal and associated modelling that applies the IMs. The Commission will assess compliance with the IMs as part of the scrutiny of Chorus’ proposal. The Commission will determine the final actual values of the initial RABs (including the financial loss assets) for Chorus and the three local fibre companies after 1 January 2022, once the necessary information is available.

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

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