Commission Cuts Excess Expenditure And Keeps Chorus Focused On Delivering For Consumers

The Commerce Commission has today issued its final decision to approve $1.722 billion expenditure by Chorus over the next four years (2025-2028) – but disallow $172.6 million that would have flowed through to price increases for consumers.

Telecommunications Commissioner, Tristan Gilbertson, says the Commission is focused on ensuring Chorus continues to invest efficiently ahead of demand for the long-term benefit of Kiwi consumers.

“We want to see ongoing investment in world-class infrastructure but are conscious that any expenditure we approve ultimately flows through to the prices Kiwi consumers pay for fibre services.”

Mr Gilbertson said that Chorus has provided further evidence to satisfy the Commission that expenditure of $1.722 billion is prudent and efficient, resulting in an increase over the Commission’s draft decision, but $172.6 million of its proposed expenditure still failed that test.

“This is the regime acting as it should to encourage ongoing investment, including in critical resilience initiatives, but guarding against unjustified expenditure that would be paid for by Kiwi consumers.”

The importance of resilient infrastructure in the face of increasingly frequent and severe weather events was a key consideration during the consultation process and Mr Gilbertson emphasised a robust and well-maintained fibre network is essential to New Zealand’s economy.

This is the first of two key decisions the Commission needs to make to set a new price-quality path – including maximum revenue and minimum quality standards – for Chorus as the country’s largest fibre network provider.

The final decision on expenditure will be followed by a final decision on revenue and quality standards later in the year. Consultation on the draft revenue and quality standards is underway, with cross-submissions closing on 5 September 2024.

Background

Chorus proposed expenditure of $1.895 billion for the four years of the next regulatory period from 2025-2028 (adjusted to remove earlier proposed expenditure of $189.7 million on expanding its network – which it now proposes to do on a case-by-case basis using individual capex proposals).

The Commission reduced this to $1.59 billion (which was 16% or $301 million below Chorus’ proposal) in its draft decision in April on the basis that Chorus had failed to meet the “prudent and efficient” test in respect of the expenditure that had been excluded.

Chorus has subsequently provided further evidence that has led to approved expenditure increasing to $1.722 billion in today’s final expenditure decision. This is an increase of $128.4 million (or 8%) over the Commission’s draft decision but is $172.6 million (or 9%) below Chorus’ proposal.

New Zealand’s fibre networks were built by four regulated fibre wholesalers in partnership with the Government under its Ultra-Fast Broadband (UFB) initiative. The other three regulated fibre wholesalers are Enable Networks, Northpower Fibre and Tuatahi First Fibre (previously Ultrafast Fibre).

These networks are now regulated through a price-quality and information disclosure regime, introduced in 2022 following amendments to the Telecommunications Act. The regime has the long-term benefit of telecommunication end-users at its heart.

The Commission set Chorus’ first Price-Quality Path (PQP) for the period from 1 January 2022 to 31 December 2024, on 16 December 2021. On 28 February 2023 the Commission determined the duration of Chorus’ second PQP as four years starting from 1 January 2025. The Commission is required to determine Chorus’ PQP for this second period before 1 January 2025.

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