New Zealand’s Commerce Commission has released a for-consultation draft, for regulatory purposes, of its views on the value of Chorus’ fibre network.
The value the commission assigns to the network is a key building block it uses to determine the revenues Chorus will be able to earn over the first three years of a new regulatory regime that starts 1 January 2022.
Its initial valuation, as set out in the draft is only marginally ($NZ80m) below Chorus’ own valuation of $5.507b submitted in March.
Chorus built the fibre network in partnership with Government-owned Crown Infrastructure Partners (previously Crown Fibre Holdings) under the Ultra-Fast Broadband programme.
Under the Telecommunications Act, the network, Chorus’ initial regulatory asset base (RAB), includes the assets Chorus uses to provide fibre broadband services, and a financial loss asset (FLA) to compensate Chorus for losses incurred in rolling out the fibre network ahead of demand.
The draft decision follows consultation on the $5.507 billion initial RAB valuationthat Chorus submitted to the Commission in March 2021.
Telecommunications Commissioner Tristan Gilbertson said: “We have reviewed Chorus’ submission with the benefit of input from external experts and other stakeholders. Central to this has been testing Chorus’ estimate against the requirements of the Fibre Input Methodologies (IMs) we set last year.
“These IMs were designed to allow Chorus to earn an appropriate return on its investment while promoting the long-term interests of Kiwi broadband users around price and quality.”
The commission said its initial valuation was $NZ160m lower than that submitted by Chorus was “due largely to a different view on the allocation of certain costs to Chorus’ fibre network,” but this had been partially offset by changes made to improve the approach to calculating Chorus’ FLA, which added back around $NZ80 million. The net result is a proposed reduction of Chorus’ initial RAB estimate by $NZ 80 million to a total of $NZ5.427 billion.
Feedback sought
The Commission is seeking feedback on its draft decision and will make its final decision on Chorus’ initial RAB next year, when all necessary information is available, but will set a transitional initial RAB value in December using currently available information. This will be used as an input into the price-quality path for the three years from 1 January 2022 that will also be set in December.
Mr Gilbertson said that the Commission’s decisions on the maximum revenue Chorus can earn, along with the declared price cap that will apply to the most popular 100Mbps fibre product, will enable a smooth transition of prices into the new regime, while ensuring that Chorus maintains quality standards for consumers.
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