Wednesday, 4 December 2013

For serious telco addicts only

You know what UBA is, and UFB? You got the whole initial pricing principle/final pricing principle thingie sussed? You can recite s18 of the Telco Act? Okay, we're good to go.

So. Chorus is taking the Commerce Commission to the High Court over the Commission's UBA pricing decision. It's not always the best idea to fire all the weapons you have, and there's now more expense, uncertainty and delay, but never mind: at least Chorus had the grace to take a "more in sorrow than in anger" tone, and who knows, if the rest of us were sitting around the Chorus management table, maybe we'd have pressed the legal button, too.

We haven't seen the details of Chorus's suit: maybe they haven't been finalised yet. All we have got to go on is this Chorus press statement, which gives a brief if rather disjointed description ("the limitation of two benchmarked countries despite the specific factors set out in section 18 and 18(2A)") of the grounds Chorus might have for challenging the Commission's decision.

But even without knowing the details, I rate Chorus's chances of success at low, and here's why.

My guess is that, perforce, Chorus's suit will focus on s18(2A) of the Telecommunications Act, the bit that says,

"(2A) To avoid doubt [often a warning marker, by the way, that what comes next will significantly increase the uncertainty of meaning], in determining whether or not, or the extent to which, competition in telecommunications markets for the long-term benefit of end-users of telecommunications services within New Zealand is promoted, consideration must be given to the incentives to innovate that exist for, and the risks faced by investors in new telecommunications services that involve significant capital investment and that offer capabilities not available from established services".

The government, at one point, was certainly taking the line that s18(2A) was legalese for, "We, the government, are telling you, the Commission, not to set low copper-based prices that will impede take-up of the fibre-based UFB", and no doubt Chorus will be saying something similar.

So here's why I think the Chorus case will struggle.

One, the Commission is only required to "consider". It clearly did. If this suit goes the distance, then there'll be some very clever lawyers dancing on the head of the "consider" pin and on the adequacy and extent of "considering". I think the Commission will scrub up okay on those sorts of adequacy and extent arguments. And at the end of the day it's a consideration, not a mandatory over-riding instruction, and it looks to me that the consideration test was met.

Two, the Commission was simultaneously told to follow quite a prescriptive price-setting process - the "initial pricing principle" of discovering a particular set of overseas prices, and using them as a benchmark. This was clearly the main thing it had to do, though with a weather eye out for considerations like s18(2A).

Personally, I think s18(2A) was a largely incoherent overlay over the initial pricing principle: you can't ask a regulator to (a) set prices at the level overseas and (b) set prices so as not to cause trouble with local UFB prices. But if you're obliged to make the best of the statutory hodge-podge you've been given, as the Commission was, then in my view its major responsibility was to do the benchmarking (the whole scheme of the Act, for years, has been based on this initial pricing/final pricing process), and where any discretion might be available (eg picking points within a benchmark range), then it should try and incorporate s18(2A). As the Commission did.

I've been wrong before when I've had a go at guessing how the Commission's litigation, and litigation against it, might pan out. No doubt I'll be wrong again from time to time.

But I don't think this is one of those times.


  1. From what I understand, s18(2A) was only inserted after the wrangling over whether the ComCom was allowed to regulate fibre prices or not (at one stage they were going to be locked out of regulating for 10 years (?)). So a reasonable person could assume that s18(2A) only applies to the choice of price of fibre and nothing to do with the price of copper at all.

  2. You could well be right on the chronology and intent of s18(2A). The plain wording of s18 is quite general, though, and would appear to apply to any regulation (copper, fibre, wireless) the Telco Commissioner does. That's the trouble with trying to hint at a specific issue with a generic provision when you might be better off addressing it directly in some other way, rather than making a dog's breakfast of the primary Act

  3. While on s18, I've always been amused by the rest of it. s18(3) makes sense - "Except as otherwise expressly provided, nothing in this Act limits the application of this section" - but why did that need a further s18(4), "Subsection (3) is for the avoidance of doubt"? You'd be tempted to add a new s18(5), "So is subsection (4)"....


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