Chorus' proposed new wholesale price sparks concern among telcos who warn of higher broadband cost for retail customers

Telecommunications operators have voiced their ire over the rise in wholesale rates that Chorus can charge

Spark and CallPlus are among those that have both issued warning that Kiwi consumers will end up suffering, paying higher prices, following the Commerce Commission’s new proposed wholesale rates that Chorus can charge.

The Commerce Commission announced today that total proposed wholesale price for the unbundled bitstream access (UBA) service will be $38.39 per month, compared $34.44 per month. 

“Today’s announcement is unexpected and we are now facing costs approximately $60 million a year higher than we previously anticipated. These higher costs will affect all our fixed services, not just broadband services,” Spark’s managing director Simon Moutter says.

This sentiment was echoed by CallPlus, parent of Orcon. “The industry has been expecting wholesale prices significantly lower than the $38.39 announced today,” says Mark Callander, CEO of CallPlus.

“The good news for Kiwi consumers is that Flip, Orcon and Slingshot’s current prices were implemented in anticipation of a lower wholesale price. The bad news is that with today’s announcement, any further price innovation will be tricky.”

Moutter of Spark says:“For the past two years, we have been anticipating a $10 reduction in broadband costs, which has been reflected in our current customer pricing. But what we didn’t expect was a $5 increase in the cost for a residential or business line – for both broadband and standalone voice services.”

He says intense market competition means the anticipated reduction in wholesale broadband charges (signalled by the Commerce Commission as far back as December 2012), had already flowed through into retail broadband prices.

“For instance, what you get in our basic $75 broadband plus home phone plan today would have cost you $105 three years ago. In that time, our wholesale costs have barely moved until the new charges came into effect yesterday.

Price review

The company has no choice, he says, but to review its current pricing across both voice and broadband plans.

He notes today’s announcement highlights the challenges retail broadband providers face, with constant shifts in their underlying costs.

The industry, he adds, has been trying to get some certainty to ensure retailers can plan ahead. “We led an initiative seeking an agreed industry solution for wholesale broadband charges, and we also welcomed the government’s attempt to provide this certainty through legislation. 

“Neither came to pass, meaning we - and the rest of the industry - were left with only the initial schedule of charges set out by the Commission in 2012 and 2013 to guide our budgeting and retail pricing.  These initial charges were finalised by the Commission in November 2013, upheld by the High Court in April 2014 and by the Court of Appeal in September 2014.  They have been anticipated by Spark and other providers in our existing customer pricing.” 

CallPlus’ Callander says: “Companies such as ours have spent millions unbundling. Unbundling has bought price reductions and innovation to Kiwis – and ultimately driven down broadband costs across the country. Today’s announcement is a massive kick in the guts for unbundlers.

“If today’s price remains it will penalise competitors who have invested in their own equipment to control broadband services and provide innovation as a result.”

Callander says CallPlus is reviewing the announcement and details in-depth, and will weigh up its options in the coming days.

“We know the Commission is keen to finish the process quickly, and end uncertainty, but more important is getting it right. This decision, if the price is unchanged, will have a serious impact on competition and it, ultimately, affects every New Zealander.

“We are surprised at the increase. Essentially it’s just grabbing a few extra bucks from every Kiwi household, month-in, month-out, and transferring it to Chorus’ shareholders. That doesn’t sit well with us.”