The price of copper

December 14th, 2012 at 11:00 am by David Farrar

Tom Pullar-Strecker at Stuff reports:

Communications Minister Adams has declined to shed light on whether the Government is considering intervening over pricing because of concerns about copper-based competition to ultrafast , or Chorus’ ability to fund the UFB roll out.

Adams said claims that consumers would lose out if the Government overruled a move to drop the wholesale price of copper broadband connections by as much as $12.53 a month were exaggerated.

It “was highly unlikely that retail service providers would fully pass through any wholesale cost savings”, she said.

I’m quite dismayed that the Government’s response to the Commerce Commission’s draft copper pricing determination has been to threaten to legislate to overturn it, if they persist with it.

Lower prices are a good thing. Unless the Commerce Commission has misinterpreted the law they operate under, they should be applauded for looking after the interests of consumers.

And while it is right that retailers may not pass on the entire $12.50 a month saving, I am confident they would pass on the vast majority. If you think they won’t, then you are saying we do not have a competitive retail market and that is a far bigger issue.

I have been a huge supporter of the fibre roll-out to 75% of New Zealanders. But you don’t get people onto fibre, by artificially inflating the price of copper.

To be blunt the Government should shut the hell up on the Commerce Commission’s draft determination. There are some aspects of the Commerce Commission’s work where they refer to to Ministers for a decision, such as mobile termination rates. In those areas it is entirely appropriate for Ministers to express a view – as they are the decision making.

But in this area of setting copper access prices, it is purely a decision for the Commerce Commission, under the law passed by Parliament. The only response by Ministers should be that these pricing decisions are a matter for the Commission, and they support its independence.


9 Responses to “The price of copper”

  1. dave_c_ (848 comments) says:

    Most customers I know will always go for “Best value for money” options – It would be really disturbing if providers are seen to be charging near equivalence of price (or possibly even more) for ‘older technology’ than new technology !

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  2. Harriet (7,523 comments) says:

    “….Lower prices are a good thing….”

    And then we can all work for less. And shareholders can earn less. And the government earns less in taxes.

    “The wreckless pursuit of poverty” springs to mind!

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  3. PaulL (6,057 comments) says:

    Harriet, it’s about what you can buy with the money, not how many dollars you get. If the price of everything goes up, then it doesn’t help you that your pay went up by the same amount. The classic fallacy of inflation.

    Lower prices are definitely a good thing, to the extent that those lower prices are driven by technological and productivity improvements. Lower prices driven entirely by removing profit from the system are not necessarily so attractive.

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  4. phil.stevens (5 comments) says:

    Perfectly on form for this government. Don’t like the message? Shoot the messenger. Don’t agree with a policy decision rendered by the very body empowered in law to do so? Legislate over them. Conflict between shareholder profits and consumer prices? Screw the consumer. Local authority making resource management decisions according to what their electorate has mandated but counter to what a handful of influential interests wanted? Sack the council, impose a puppet regime and lie about the timeline for restoring representation to those who are still being taxed. Don’t want to hear about the smartest and highest BCR solutions to transportation problems? Dismiss them and gesticulate wildly about the magical effects of more roads.

    One of these days tens of thousands of sleepy hobbits will wake up. It will be too late then.

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  5. Mike Wilkinson (89 comments) says:

    I think if one takes issue with the Government intervening with the Commission’s approach to setting the price of copy then one is taking issue with the Government’s decision to invest in broadband. Since the Government decided to go all in for that particular technology, they’re going to look pretty stupid if it doesn’t succeed. Should they set themselves up to fail by not reducing the price of competing technologies?

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  6. phil.stevens (5 comments) says:

    @Mike – you’re not making sense. Did you mean to say “set themselves up to fail by not forcing customers who can’t even get fibre to subsidise others through inflated copper pricing”?

    Car analogy: Flash new model comes out, but isn’t selling as well as dealers had hoped, so they get govt to tax everyone driving other cars in an attempt to make the new one look like a bargain. Oh, except you can only drive this new car in the major centres, and only in the nicer suburbs.

    There. Fixed that for ya.

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  7. lastmanstanding (1,724 comments) says:

    First a declaration of self interest. I am a benefical owner of Chorus shares.

    If UFB roll out is gonna happen its gonna require dollars. the fairies wont provide UFB despite what the Socialist Party Green Party et al think.

    If I and others are gonna pony up the dollars we expect a return on our dollars. We aint an ATM machine for those wanting UFB.

    So either CC allows our company to charge prices that reflect the investment and allow an appropraite return on capital to we the owners of the company or we will take our dollars and go elsewhere.

    And guess what morons, No UFB or a very much more expensive UFB than we the owners of Chorus will provide you with

    Your choice.

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  8. PaulL (6,057 comments) says:

    @lastmanstanding: two different things, you’re picking the wrong answer to the wrong problem.

    1. Should the govt artificially hold up minimum prices for copper, thereby allowing wholesale companies to make excess profits? No.

    2. If the govt wants a successful fibre broadband, will it have to subsidise the entry costs of commercial players so that they can make a reasonable dollar out of it? Probably, but that should be a direct and transparent subsidy, not a really inefficient minimum price that gives excess profits to commercial entities that may or may not be involved in the fibre rollout.

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  9. orewa1 (430 comments) says:

    Quite a conundrum! By quite rightly re-entering the telecommunications infrastructure market the government put itself in a position of conflict as not only regulator and largest customer of the sector, but also an investor in it.

    So now the regulator, rightly, has ruled that the copper has become overpriced at wholesale level, and the tariffs should be reduced to the benefit of retail service providers and hopefully, consumers. The government’s problem is this will widen the gap between the retail price of old copper and new fibre, making the fibre harder to sell.

    The solution is not to maintain the wholesale price artificially high. This would undermine the regulator and effectively deliver an early Christmas to Chorus shareholders.

    Perhaps the pragmatic answer is for the governbment to allow the regulator’s ruling to stand, but legislate to claw back part of the savings as a levy and add this to the proceeds into its fibre investment. There is probably scope to do this under the Telecommunications Act. That would be a win/win – Chorus would still get a fair price for copper as calculated by the Regulator, consumers would see their current price unchanged but benefit from faster roll out of fibre, the government would get the ratio between copper and fibre prices remains unchanged so as to maintain fibre’s marketability, and the regulator’s independence would be preserved.

    Why not? Time for creative thinking.

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