Editorial: Cost of fibre optic cable is competitive

Luke Newport, principal contractors to Chorus, linking ultrafast broadband connections in Caulfield Place. Photo / Duncan Brown

Last Friday, our editorial expressed concern that the charge being set for telecommunications on the copper network was being artificially inflated to make the Government-inspired roll-out of fibre optic cable more competitive.

That view has been strongly contested and we need to reconsider a number of issues. Few costs in an economy are more important than the price of its vital infrastructure.

Chorus, the network provider, does not set its own charges. They are done entirely by the Commerce Commission. We have been assured the charge determined by the commission last week has nothing to do with the cost of fibre connections, the uptake of which is at 16.4 per cent of customers served so far.

Before the advent of fibre, the network provider, then Telecom NZ, was permitted to charge a rate for access based on its own retail charges for service minus an amount that the Commerce Commission reckoned to be Telecom's retail margin.

It was allowed to charge a high rate for rural services reflecting the greater costs of wiring small, scattered populations and difficult terrain.

Changes came in 2011 when Telecom was split into a network provider, Chorus, and a retail company, now called Spark.

Chorus became the main contractor for the Government's fibre role-out. The separation of the network from a retail operation meant that the commission had to change its method of setting the network charge, from the retail value minus the margin, to the cost of the network plus a reasonable profit.

The figure for the cost of the network was an average of rural and urban costs and had to be benchmarked to costs in comparable countries.

All of this is heartening to hear. Access to the existing copper network should be charged at a rate that reflects its true costs, not the Government's enthusiasm to convert consumers to fibre.

Establishing the true cost of anything in the absence of competing providers is always vexed. Chorus and a telecommunications users' group have been arguing about this one since the Commerce Commission arrived at a figure, $34 a month, based on costs Chorus considered too low.

The attempt to make international comparisons proved too difficult. Nowhere else quite matches New Zealand's thin population and varied geography. In 2013, all sides of the argument agreed the cost figure should be based on New Zealand data and last week the commission delivered its new calculation, $41 a month.

This seems acceptable to Chorus, which based its bid for the fibre roll-out on an estimate of the cash it could generate from its existing copper network, though service providers and their customers were hoping for a lower figure.

It has been said (not only here on Friday) that the additional $100 million a year Chorus can now make from its existing network will make it more lucrative for the company than fibre.

Despite this, says Chorus, it was set up to provide fibre and its whole business has been organised for fibre. It is the future and we are relieved that its cost is competitive with the cable it will replace.