This week, the NZ Competition Commission announced its final decision on key elements of New Zealand’s future fibre regulation of Chorus.
New Zealand will use a rate-of-return approach to calculate Chorus’ allowed revenues, but this week’s final decision does not set specific revenue constraints or wholesale prices. Rather, it sets up the methodologies used to calculate Chorus’ allowed revenues, including how to calculate the value of its fibre network assets and the cost of the capital that it uses. In particular, New Zealand will use a building block model (BBM) to calculate the value of Chorus’ fibre assets.
A key issue is how the Chorus’ accumulated losses during the network build period are incorporated into the BBM. In addition to the core fibre assets, the RAB will include a financial loss asset that captures unrecovered returns that have accumulated up to the implementation date. This means that Chorus will be able to recover these losses through its future regulated fibre prices. The Commission will release further detail on the calculation of these losses in November.
New Zealand is well ahead of Australia in updating its telecommunications regulation. Variations to the nbn SAU to incorporate the non-FTTP technologies have been in limbo since 2016. This has given the ACCC extra leverage, as services not covered by the SAU are potentially subject to declaration and price regulation, but this has also increased regulatory uncertainty and is arguably inconsistent with the government’s multi-technology mix policy.
The nbn’s Initial Regulatory Period expires on 30 June 2023, and new arrangements for nbn’s long-term regulation must be put into place before then. The Australian Minister for Communications has just this week served the ACCC with a statement of expectations identifying a BBM as the appropriate approach to nbn regulation post-2023. This is consistent with the priority that the government places on ensuring sustainable investment in telecommunications infrastructure.
The ComCom’s deliberations will therefore be an important case study for the Australian government and the ACCC. We expect more regulatory convergence between the two countries as long-term arrangements are bedded down. Given the size of nbn’s accumulated losses, we expect this aspect of the post-2023 framework will attract significant interest from government, the nbn, and access seekers alike.