Telcos rail at internet proposal

Slingshot CEO Mark Callander says Government proposals would amount to a levy to bolster the rollout of fibre. Photo / Janna Dixon

Smaller telcos are seething about Government proposals they say would make wholesale copper internet prices artificially high, hinder competition and hurt innovation.

A discussion document released this week by the Communications and Information Technology Minister, Amy Adams, suggests Chorus' wholesale charges for copper line services should be set between $37.50 and $42.50 a month.

This is up to $10 higher than the Commerce Commission's proposal last year for monthly wholesale charges and follows complaints from Chorus that if copper prices are too low, it could inhibit the uptake of fibre services being rolled out as part of the Government's $1.5 billion ultra-fast broadband scheme.

Smaller internet retailers which pay these wholesale charges have loudly opposed the Government paper proposals. Slingshot and CallPlus chief executive Mark Callander said the move would keep copper prices artificially high and amounted to a levy to bolster the rollout of fibre lines.

"The Government's decision will largely protect Chorus shareholders ... whilst also ensuring that Chorus continues to make artificially high margins on its copper products to fund its fibre rollout," he said.

Chorus wholesale charges have two components, called UCLL and UBA. Telcos which have invested in what is known as unbundling only have to pay the UCLL portion and not the UBA part of the wholesale charges.

Unbundling involved companies like Slingshot putting their own equipment in telephone exchanges, allowing them to offer better broadband and phone services to customers for less, Callander said.

However, two of the pricing options being considered by the Government would increase the UCLL portion of Chorus charges by between $5.05 and $10.32.

Callander said this would remove the incentives to unbundle exchanges or to invest in copper-line technologies such as VDSL which offer users much faster speeds. "As people have less desire to invest in copper-based services or wealth is transferring from [retailer providers] to Chorus, where's the money going to come from for [retailers] like ourselves to innovate and add new services?"

Orcon chief executive Greg McAlister said the Government proposals were a "tax on New Zealand households" to fund the fibre rollout.

"Our costs are going up no matter which way you look at it ... I believe it will reduce innovation in the market, [our] margins are so slim now," he said.

Unlike Slingshot and Orcon, Telecom welcomed the Government's review of the pricing framework. Telecommunications Users Association chief executive Paul Brislen said Telecom was in a different position because it owned a voice network, known as the PSTN. This meant they didn't need to wholesale as much off Chorus and, in effect, their costs would stay the same under the proposals, he said.

Chorus' share price, which rallied by almost 5 per cent on the Government's announcement this week, dropped back 3.3 per cent yesterday, closing at $2.93.