Wednesday, 27 November 2013

Will the Commerce Commission come out with higher broadband prices?

I'm not a client of Forsyth Barr, and so don't have access to its research reports. All I've got is press coverage (eg here and here) of their recent research note that (according to both press reports) says, that when the Commerce Commission comes to do a full cost analysis of Chorus's broadband service, as opposed to its initial, overseas benchmark based, costing, "Our analysis shows the commission will have underestimated the cost to deliver a nationwide broadband service in this country".
I haven't seen the analysis, and I don't know how deep it goes, and hence and otherwise I'm not saying it's outright wrong. But I'm sceptical.
To start with, it's a rather heroic exercise to try and foresee the final outcome of what everyone acknowledges (assuming it isn't bypassed by some other policy option) will be a massive, complex and lengthy modelling exercise, and which has plenty of room for important judgement calls along the way. Which is why people have generally shied away from going that route if they can help it. Be the analytical hero by all means - the more info that's out there for investors on how regulation works, the better, especially if it leads to fewer episodes of abrupt changes in share prices on "new" regulatory information. I'm just not convinced (admittedly from the outside and on limited information) that one can confidently make this call about the ultimate relativity of the final cost-based price and the initial benchmarked one.
And secondly, as I've posted a couple of times before, my personal experience after at least four sets of Commission regulation (interconnection, wholesale discounts, mobile termination and earlier stages of UCLL) is that the initial benchmarking stabs at likely New Zealand telco costs tend to be reasonably accurate and, importantly, live-able with by the parties involved. If anything, the benchmarked prices could be on the high side: this is especially true of the bits where there is rapid technological progress (eg in the gear used to supply UBA, or in wireless hardware and software). By the time you've finished the benchmarking and set a local price, overseas prices have dropped further again due to the newer whizbang technology.

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