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Commission recommends small cut in Telecom wholesale pricing

The Commerce Commission has released its final determination of unbundled bitstream access (UBA) pricing, which would result in a small decrease in Telecom's wholesale prices.

The Commerce Commission has released its final determination of unbundled bitstream access (UBA) pricing, which would result in a small decrease in Telecom's wholesale prices.

In March, the commission commenced a review of UBA pricing components, including overage, ISP services, bundle discounts and data transmission.

It has updated the price for data transmission, which has decreased to reflect Telecom’s retail data prices as at June 30, from $1.30 per GB (GST-exclusive) to $1.

Telecommunications Commissioner Dr Ross Patterson says the commission calculated the amount by using a linear regression to estimate the relationship between the retail price of Telecom broadband plans and data usage.

Telecom had submitted that the retail price should relate to its own costs rather than the retail value.

"Telecom’s proposed approach may lead to reduced competition in the downstream market, as there will be less ‘economic headroom’ in which access seekers are able to compete with Telecom’s retail prices. Reduced competition is likely to decrease dynamic efficiency by limiting the competitive pressure on operators to invest in their networks and offer innovative new services," Patterson wrote in his report.

Removing the margin that Telecom earns on ISP services and data transmission from the UBA price will promote market efficiency, he says.

The commission also updated the amount deducted from the UBA price to reflect the value of Telecom’s ISP services from $8.89 (GST-exclusive) to $10.87.

 The $8.89 was based on the TelstraClear Bitstream Access Determination in 2005 and was the difference observed between residential Jetstream plans (those retail prices that included an ISP charge and those that did not). The commission says that since 2005, the nature and extent of ISP services has expanded.

The commission's approach to other components, including overage, the bundle discount and avoided costs saved, remains unchanged.

Patterson says overall, the review will result in a very small decrease in UBA wholesale pricing.

The changes will be implemented in September and backdated to July 1.

The commission first undertook a review of the data transmission component in 2010. It then decided a much broader review of the UBA pricing methodology, and its inputs, was required.

It has proposed UBA pricing methodology should be reviewed annually.

However, should Telecom structurally separate, as it is expected to do conditional on shareholder approval, UBA prices will be frozen for three years after separation day.

UBA allows telecommunications companies to supply broadband services to retail customers without the need to replicate Telecom's copper local loop, and will be provided by Chorus after the split.