Market reacts to ComCom Chorus probe backflip

BUSINESSDESK: The Commerce Commission has backed off the view that it needs to investigate a service on Chorus's copper telecommunications network as it mulls the regulated pricing regime for the ageing lines.

The market reacted strongly to the news.

Chorus shares (NZX: CNU) are up 10 cents, more than 3%, today to $3.17, in trade worth more than $2.6 million.

The anti-trust regulator changed its mind that it is necessary to hold a Schedule 3 investigation into the pricing principles of Chorus's unbundled copper low frequency (UCLF) service.

It now wants to enable Chorus to recover "forward-looking costs of providing the service," it said in a paper on the network company's copper pricing.

The commission is still considering whether separate pricing terms should apply to the UCLF and unbundled copper local loop services.

Forsyth Barr analyst Guy Hallwright calls today's decision a "detour", in which ComCom has backed away from the idea it needed to tinker with price principles.

However, he says prices for unbundled copper local loop services (UCLL) might still change.

"It doesn't really mean anything," he says.

"This is just one technical step in a long process. What's important is the UCLL price review, which is due to come out in November. "

Chorus investor Aaron Bhatnagar says it seems ComCom is factoring in investor sentiment with today's decision.

"In terms of a first-step, it's encouraging because it's not nearly as intimidating as the original Patterson proposals."

Further analysis after draft decision

The UCLF service lets telecommunications companies access and connect with the low-frequency end of Chorus's copper local loop network, which connects an end-user's building to the handover point in the local phone exchange.

By contrast, the UCLL service lets the telco companies use the copper network between an exchange and an end-customer's premises to offer their own voice and broadband services.

"Following considerable feedback from the industry and interested parties on our draft decision, we did some further analysis and as a result have proposed this new framework for considering the relationship between Chorus's regulated copper services," Telecommunications Commissioner Stephen Gale says.

The commission has been re-benchmarking the prices for these copper services since August last year, when the demerger between Chorus and Telecom was gathering speed, and is expected to be completed by mid-November.

Regulated wholesale prices for access to the copper lines were averaged at a national level as a result of legislation enabling Telecom to carve out its Chorus unit last year, something that rankled with rival telecommunications companies who claimed it would lift their costs.

The preliminary determination in May drew the ire of Chorus, which warned the regulator's bias towards cheaper access to the copper lines may discourage buy-in for the taxpayer-subsidised fibre network currently under construction.

The regulator will hold a conference in September for interested parties to discuss the issues.

Chorus will engage on the views in the paper at the conference, it said in a statement.