The Commerce Commission has updated its process for determining the value of Chorus’ initial price-quality regulatory asset base (PQ RAB) following feedback from industry stakeholders.

The value of Chorus’ initial PQ RAB, or its fibre network, is an important determinant of how much revenue Chorus can earn and the prices consumers will pay under a new regulatory regime starting at the beginning of 2022. 

Telecommunications Commissioner Tristan Gilbertson said the Commission needs to establish a transitional view of the value of Chorus’s network as an input to its final decision on the price-quality (PQ) path for Chorus before the new regime kicks off from 1 January 2022.

“The initial PQ RAB is a key element of the new regulatory regime, so we welcome the feedback we have received from the industry, which we have reflected in this process update,” he said.

The updated process will allow the Commission to consider submissions on its August draft decision on Chorus’ initial PQ RAB in order to determine the transitional initial PQ RAB at the end of the year. It will then use this transitional initial PQ RAB for making its final decision before the end of the year on Chorus’ price-quality (PQ) path for the first regulatory period from 2022 to 2024. 

“Stakeholders have asked us to form a more robust view on the initial PQ RAB before determining the price-quality path for the initial regulatory period and we’re happy to accommodate that," Mr Gilbertson said. 

“The new approach will also minimise any differences between the transitional initial PQ RAB we use to set the price-quality path and the final initial PQ RAB we settle on in 2022 once we receive all the information we need.

“If these figures differ, we will need to account for any impact on revenues in the second regulatory period from 2025, so the updated approach will help minimise any differences.”

The new approach means the Commission now anticipates publishing its final decision on Chorus’ PQ path in mid-December, ahead of the 1 January 2022 statutory deadline. 

The Commission’s updated process is as follows:

• Draft decision on Chorus’ initial PQ RAB in August 2021 (unchanged)
• Final PQ path decision for Chorus in mid-December 2021, using the transitional initial PQ RAB as an input (updated process step)
• Final initial PQ RAB decision for Chorus in 2022 (unchanged)

The Commission’s process update paper as well as further correspondence received from Chorus and the Commission’s response are available on the Commission’s website.

Background

The Government’s UFB initiative aims to achieve fibre-to-the-premises to 87% of the population (including 1% private fibre) by 2022. Rural areas of New Zealand are covered by the separate Rural Broadband Initiative. These new fibre networks will provide faster and more reliable voice and broadband internet services to consumers.

Crown Infrastructure Partners contracted with four companies to build these fibre networks: Chorus and three local fibre companies – Enable Networks, Northpower Fibre, and Ultrafast Fibre.

Under the new regulatory regime, which is similar to how the Commission regulates energy networks and airports, the Commission will set the maximum revenue that Chorus can earn from its customers and the minimum quality standards it must meet. This is referred to as price-quality regulation.

The regime first requires the Commission to determine input methodologies (IMs), which are the upfront rules, requirements and processes underpinning the regulatory regime. The IMs set out the rules for how each initial regulatory asset base (RAB) must be calculated. Chorus has provided the Commission with an initial PQ RAB proposal and associated modelling that Chorus considers applies the IMs. 

The Commission will assess compliance with the IMs as part of the scrutiny of Chorus’ proposal. The Commission will determine the final actual values of the initial RABs (including the financial loss asset) for Chorus after 1 January 2022, once the necessary information is available.

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