PROJECTS

Regulation of Broadband Network Charges, New Zealand

The problem

Chorus, New Zealand’s largest telecommunications infrastructure company, was concerned about rising regulatory risk and potentially inefficient price signals following the structural separation of Telecom New Zealand into Chorus (wires) and Spark (retail) and the application of different regulatory methods to copper and fiber broadband networks. The government proposed that fiber network access charges be set through competitive tenders for the first ten years. The regime for future charges was to be determined later. Copper network access charges were to be set through international bench marking.

How we helped

Castalia examined the likely effects of uncoordinated and poorly designed regulatory approaches to fiber and copper networks. We argued that regulating the two networks separately was not consistent either with efficient facilities-based competition between the two or with efficient managed transition from copper to fiber. If the government wanted to allow fiber and copper to compete, it should not regulate either network and allow prices to be set through competition. If the government wanted to promote managed replacement of copper with fiber, the most efficient approach would be to set maximum allowable revenue for a combined copper-fiber broadband network as a single natural monopoly, based on a reasonably efficient level of investment, while allowing the network operator to set charges for specific services to send efficient signals to consumers. We assisted Chorus with preparing submissions to the New Zealand Government.

Impact

Castalia’s research showed that better integration of regulation of copper and fiber was necessary. Our pricing paper helped start a policy debate, which six years later culminated in new legislation setting a unified regulatory approach for the fixed-line broadband services.