Chorus revenue cap should be 4% lower than asked for, ComCom suggests

Thursday, 27 May 2021

Chorus has argued for a revenue cap 4 per cent higher.

The revenues that Chorus can earn from providing access to its ultrafast broadband network may be capped at $689 million next year, a figure 4 per cent lower than the company had argued for.

The Commerce Commission said in a draft determination that the revenue cap would be allowed to rise to $786m by 2024, in line with higher consumer demand for UFB.

The final decision, which will be made in November, can be expected to affect the price consumers will pay internet providers for broadband.

The watchdog did not estimate that dollar impact in its draft decision, but a spokesman said the proposed allowable revenue cap “assumes that in aggregate prices will likely remain flat in real terms.”

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Telecommunications commissioner Tristan Gilbertson said the commission was proposing to reduce Chorus’ expenditure allowance across the period by $210m to a level 14 per cent below that which Chorus had proposed.

Chorus is currently allowed to charge internet providers $47.15 a month for a standard 100 megabit-per-second UFB service.

Telecommunications commissioner Tristan Gilbertson is refereeing the competing demands of Chorus and internet providers.

The final cap could potentially impact the pricing of that and other Chorus UFB products.

The next few months look set to be echo of the telco battles of old, as the commission works its way to a final ruling.

Speaking to Stuff last month, Gilbertson said “Chorus wants a bigger number; the retailer providers want a smaller number.”

Spark had accused Chorus of essentially of overestimating and loading too many corporate and other unrelated costs into the price calculation for its regulated UFB service.

The commission’s draft ruling appears at least a partial-validation of that view.

But the commission said Chorus could re-apply to have some categories of expenditure that the watchdog had disallowed for the purposes of its calculation included via another mechanism.

Chorus said the proposed cap didn’t yet reflect critical decisions that are still to be made by the commission, including on the initial value of the fibre network, which can be expected to affect the final dollar-value of the revenue cap.

Chief executive Jean-Baptiste Rousselot said Chorus would review the commission’s draft decision carefully and appeared to indicate there would be some push-back from the company.

A key focus of Chorus’ submissions on the proposed cap would be ensuring the expenditure allowed bythe commission could support “the ongoing roll-out and operation of our world class fibre network”, he said.