The Commerce Commission is seeking feedback on its draft decision that it is too early to investigate the deregulation of fibre (UFB – Ultra Fast Broadband) services.
"Our preliminary view, just three years into the new regime, is that there's not enough competitive constraint on fibre for there to be any serious question of deregulation at this time," said Telecommunications Commissioner, Tristan Gilbertson.
"Fibre providers occupy a near monopoly position in their markets, with the incentive and ability to act contrary to consumer interests, unless there's enough competition from alternative technologies to hold them back."
Mr Gilbertson says that the predominant competing technology, 4G wireless broadband, does not exert sufficient competitive constraint on the significant market power of fibre providers.
"4G wireless broadband is limited in its ability to constrain fibre – particularly given the increasing gap between what Kiwi consumers want from their broadband service and what 4G wireless broadband can deliver."
Mr Gilbertson said the Commission is concerned that, if regulation were removed prematurely, fibre providers would be able to increase prices or reduce quality – or both – to maximise profits at the expense of consumers.
"It's therefore in the best interests of consumers that current regulation remains in place for now – so that Chorus continues to invest in providing world class services at reasonable prices.
"Regulation is designed to promote the long-term interest of consumers and outcomes consistent with an effectively competitive market – as seen in our final decision last week on Chorus' expenditure for the next four years. This will see Chorus invest $1.722 billion in its network over the next four years but protect consumers from $172.6 million of unjustified expenditure that would have flowed through to higher prices."
If confirmed in the final decision, regulation would continue to apply to wholesale UFB fibre services, with deregulation next to be considered before 2029.
"We'll be keeping a close eye on the development of 5G wireless broadband services going forward. They narrow the gap between what most consumers want in terms of speed and performance and what wireless broadband can deliver – so they're a potential game changer. However, for now, they're still in the early stages of being rolled out and their potential hasn't yet been demonstrated."
Submissions on the Commission's draft decision are due by 5pm on 24 September 2024 and can be made through the Commission's infrastructure regulation mailbox. Cross-submissions on matters raised by other parties are due by 5pm, on 15 October 2024. The final decision will be made by Q4 2024.
Background
New Zealand's fibre networks were built by four regulated fibre wholesalers — Chorus, Enable, Northpower, and Tuatahi — in partnership with the Government under its Ultra-Fast Broadband (UFB) initiative.
These networks are now regulated through a price-quality and information disclosure regime, introduced in 2022, following amendments to the Telecommunications Act (Act).
Enable, Northpower, and Tuatahi are subject to information disclosure regulation only, while Chorus (as the largest fibre provider) is also subject to price-quality regulation.
The Commission is in the process of determining Chorus' price-quality path for the second regulatory period covering 2025-2028.
The fibre (UFB) regime is intended to incentivise regulated fibre wholesalers to act in the best interests of consumers and to promote competition in telecommunications markets. Information disclosure requirements exist to ensure that sufficient information is available for people to assess whether this is being achieved. Price-quality regulation allows the Commission to set the maximum revenue Chorus can earn from its customers and the minimum quality standards it must meet.
The Commission must consider whether there are reasonable grounds to start a fibre fixed line access services deregulation review under s 210(3) of the Act before each regulatory period. The current review must therefore be complete by 1 January 2025, and the next by 1 January 2029.
There are seven fibre fixed line access services subject to regulation – including the principal service used to deliver fibre broadband services to Kiwi homes (Bitstream PON).
