UFB wholesalers are allowed one price increase per year. Photo / 123rf
OPINION:
Spark's move to raise its broadband prices is likely the first of a wave of increases.
Rivals Vodafone and 2degrees say they've yet to make final decisions but could have little choice if UFB network operator Chorus hikes its wholesale rates, as expected, Its big reveal is coming on July 5.
Under a new regulatory regime, UFB wholesalers are allowed one price increase per year.
While Chorus runs most of the UFB network, there are also Local Fibre Companies (LFCs) in some areas, who have already confirmed they will hike their wholesale rates.
"This year we are increasing our wholesale prices in line with the December CPI rate of 5.9 per cent, coming into effect from July 1," Enable spokesman Daniel Herd tells the Herald. Enable, which holds the UFB contract for Christchurch and surrounding areas.
"We have made this decision after careful consideration for market inflation pressures that are driving up our costs – with many of our cost lines increasing at a rate greater than CPI," Herd says.
And Tuatahi First Fibre (formerly Ultrafast Fibre), which offers UFB fibre in several central North Island towns, will increase its wholesale rates by 4 per cent from the same date.
"We fully understand and acknowledge the continuing economic situation, with Covid-19 and high inflation impacting New Zealand consumer households," Tuatahi spokeswoman Katy Ritchie said.
"[But] Infrastructure networks are also exposed to these challenging inflationary pressures."
Now, all eyes are on Chorus, which controls around 80 per cent of wholesale UFB connections.
"Chorus hadn't yet finalised its fibre price increases after consultation with retailers. We will be announcing any changes to the retailers on July 5," spokesman Steve Pettigrew told the Herald this morning.
The new pricing announced on July 5 will kick in on October 1.
"Any fibre plan price changes will be wholesale only, and the decision about passing on either reductions or increases to consumers sits with the retailers," Pettigrew said.
Last week, Spark told customers it would be putting up the price of its copper and fibre broadband plans by between $3 and $5 per month from July 29.
Vodafone seems set to follow suit.
"Like nearly every other business we are facing rising costs and we are not immune to inflationary pressures whether that's cost of business increases like power, fuel and employment or in our industry, input costs rising such as the wholesale broadband prices charged by Local Fibre Companies," spokesman Matthew Flood said.
But Vodafone NZ chief executive Jason Paris has pledged a price freeze for at least 12 months wireless broadband, where his firm does control costs (wireless broadband, also called fixed-wireless access or FWA, uses a mobile network to deliver fast internet into a home or business, cutting Chorus out of the loop).
Spark has also pledged a price freeze for fixed wireless, but has not given a duration.
"No decisions have been made, but FWA competition factors in our early thinking," Pettigrew said. Chorus had to factor in that higher-speed 5G fixed-wireless services were coming when it set its pricing.
One of new 2degrees chief executive Mark Callander's first acts was to introduce an endless data 5G fixed-wireless plan.
Earlier, one of Callander's top lieutenants, Orcon Group consumer chief executive Taryn Hamilton (2degrees chief customer officer post-merger), stuck the boot into Chorus and its peers, saying.
"LFCs are crying poor when they have one of the sweetest business models going,"
"They had interest-free loans to build a network, and that build is largely finished, and yet they insist they must annually increase prices, when the cost of broadband to Kiwis has been flat for years," Hamilton told the Herald in April as Chorus confirmed it was in consultation over a possible price rise.
"ISPs have shouldered the cost of massive data use increases, customer expectations around next generation Wi-Fi and mesh networking, and weathered keeping customers online during Covid."
Competition between retail ISPs had seen them hold or even reduce their pricing over the past few years.
"Three years ago, [wholesale] costs made up 60 per cent of a customer's charges. Now it's 70 per cent," Hamilton said.
This morning, Hamilton said, "Chorus is our biggest supplier, so if it increases charges substantially, essentially we need to increase prices for services on that network."
He added, "We're still hopeful that it will take a look at the current economic landscape, the pressures on Kiwi households, and assess the amount it is increasing by. But this is probably wishful thinking, we expect Chorus to raise prices as far as the Telecommunications Act allows."
The COO said 2degrees would make sure it had products for "increasingly challenged household budgets."
Spark recently reported a surge in demand for Skinny Jump plans, subsidised by its philanthropic foundation, which it put down to "Kiwis feeling the pinch from the cost-of-living crisis".
For Chorus, Pettigrew said, "Chorus isn't insulated from the effects of inflation. There are increased costs for Chorus downstream throughout the supply chain from our service companies, freight, labour and increased electronic equipment costs."
Under the new regulatory regime, Chorus is subject to a Maximum Allowable Revenue each year, set by the Commerce Commission. "That means there are no sizeable margins on broadband at wholesale," Pettigrew said.
Chorus increased the speed of its ComCom-regulated UFB "anchor" plan from 100 megabits per second to 300Mbit/s last year while holding the price, Pettigrew said.
His company's new pricing for its Hyper Fibre top-tier plans for wholesalers would likely be set to encourage uptake against emerging 5G fixed-wireless competition.
Pettigrew added, "Our new Home Fibre Starter service, launched In April and priced at $38 per month at wholesale if retailed at under $60, is unlikely to change."
Home Starter goes head-to-head with 4G fixed-wireless plans offered by the mobile players.
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