Commerce Commission Further draft determinations for UCLL and

Commerce Commission Further draft determinations for UCLL and UBA prices Analyst briefing 2 July 2015 Stephen Gale, Telecommunications Commissioner

What I am going to cover 2 • Our ‘further draft’ decisions on FPP prices • International comparisons • Key modelling decisions • Non-recurring charges • What happens next? • Questions #2081760

Our further draft FPP prices Service Year 1* Year 2 Year 3 Year 4 Year 5 UCLL $26. 74 $27. 18 $27. 63 $28. 09 $28. 56 Basic UBA additional costs $11. 15 $10. 97 $10. 80 $10. 65 $10. 52 Basic UBA $37. 89 $38. 15 $38. 43 $38. 74 $39. 08 * Year 1 prices are valid from the date of the final determination (December 2015) 3

Wholesale price changes Need to confirm new leveilisedco mparison 4

What makes up wholesale broadband prices in New Zealand? 5

International comparisons and consumer submissions • First benchmarking of UCLL in 2007 among jurisdictions using replacement-cost pricing • New Zealand UCLL assumed to be between low prices in Europe and high prices in US states • The 2007 results were adjusted down in 2012 by 2. 1% to match movements in Europe (the US no longer using replacement-cost pricing) • New Zealand is still in that range 6

International comparisons and consumer submissions • We rely on the robustness of our modelling to determine the FPP costs in New Zealand. • We have asked TERA to compare New Zealand European models. Report published today. • NZ networks are more expensive than in Europe because of greater line length per customer and higher trenching costs 7

Key modelling draft decisions Some changes since December, for example: • More and stronger poles • Correct for missing links between clusters of consumers • Higher beta 0. 45 • Lower risk free rate at this point • No uplift to the TSLRIC price or to the WACC • Excluding trenches for lead ins and new subdivisions • Higher use of aerial distribution • Fixed wireless just on voice-only and low capacity lines • Some more sharing of infrastructure with EDBs 8

Backdating • Our further draft decision is not to backdate UBA and UCLL prices • The revised majority view is that backdating will not promote competition for the long-term benefit of end users • Commissioner Duignan supports backdating to 1 December 2014, with RSPs compensating Chorus later for the difference between the IPP and final FPP prices over the intervening period 9

Non-recurring charges • Services provided as required, such as installation of equipment in homes and switching customer connections between RSPs • First set in the ‘standard terms determination’ in 2007 • 82 in total but 7 determine most of the $31 m annual revenue • Three types: fixed price (hourly rate ×time), hourly rate, and POA 10

Non-recurring charges… • We have revised hourly rate mark-ups over labour costs, and TERA has benchmarked internationally the times for the tasks • The draft decision adjusts all the charges except the POA options • The combined effect is forecast to reduce the revenue by $10 m 11

What happens next? • Submissions due on 13 August 2015 • Cross-submissions due on 24 September 2015 • Final determinations for UCLL and UBA – December 2015 12

For more information • Additional information on our further draft determinations and our FPP process is available on our website. 13

Questions? 14