Telecom, Vodafone on whether they'll pass on copper price cuts

ICT Minister Amy Adams says Labour and other Coalition for Fair Internet Pricing supporters have been suckered into a corporate lobbying campaign backrolled by ISPs.

The Coalition says small businesses and householders will save $150 a year if Commerce Commission-mandated cuts to wholesale copperline pricing kick in, as scheduled, in December next year (and consersely, that if the government manages to over-rule the regulator and minimise the cuts, the revenue otherwise lost to Chorus will go to its shareholders in dividends rather than help pay for the UFB).

Ms Adams, says, in effect, Get real suckers, ISPs will simply pocket the savings. She said in Parliament yesterday:

I can tell you who it is not benefiting. It is not the consumers; it is the retailers. So if we insist on a lower price for the wholesalers, as Labour wants to happen—follow the money. Follow the money. I will tell you who benefits: the large corporates like Vodafone, which benefits from the extra money. That is what Labour is supporting.

That is what it wants to see happen. I will tell you what will happen now. The consumers will not see anything at all, I predict. If they do, it will be a tiny fraction of any drop

Ms Adams theory is quite easily tested.

There are many internet service providers.

But according to the most recent Commerce Commission figures, there are only four games in town.

Telecom holds around 50% of the market, Vodafone (including the old TelstraClear) 29%, CallPlus (including Slinghot) on 9% and Orcon 5%.

It would be quite easy for the four to put Ms Adams' argument to bed by pledging to pass on the copper price cuts.

But Telecom and Vodafone talked around the issue when approached by NBR today (see statements below).

Telecom spokesman Richard Llewellyn said "There are still too many moving parts to say."

Vodafone's Tom Chignell said, "We believe the whole copper pricing debate is a wholesale one and not a retail one ... We note that other ISPs (including Orcon and Slingshot) have made statements about their intentions with respect to pass through of savings in wholesale copper pricing.  We share the view of the Commerce Commission that the retail market for broadband is highly competitive and that if some players lead with price cuts, the others will have to follow."

Earlier, CallPlus and Orcon pledged to pass on the copper price cuts - or most of the amount - although Orcon CEO has noted that an internet account is made up of a lot of different pricing components. And you've got to feel for the two ISPs given the millions they've spent installing their own gear in Telecom then Chorus exchanges. It's something that's made the market more competitive overall, and helped them add services like internet voice calling - but they must also be champing at the bit for an opportunity to recoup that investment (as Mr McAlister intimated in its his initial comments to NBR).

I hope the UFB gets completed, and on time, and that the government holds Chorus' feet to the fire and makes it see through the contact it (and shareholders) signed up for. The government has badly managed the issue overall.

But especially while Telecom - holder of half the retail market - evades the question, the "Will ISPs pass on the savings?" argument is a clear-cut result: Adams 1, Coalition 0.

ckeall@nbr.co.nz

RAW DATA: Telecom statement

In response to your question on what Telecom's stance is on whether we will pass on wholesale copper price cuts:

There are still too many moving parts to say. What we can say is that Telecom is committed to competing hard in a brutally competitive broadband market, and consumers will undoubtedly benefit further from lower wholesale input costs.  It’s worth noting that over the last 18 months or so, our average revenue per broadband customer has declined about 16%. In the same period, average data usage has almost tripled. This has been happening even without any change in the input costs we pay to Chorus.

The reality is there is an extremely competitive market in New Zealand with almost 50 ISP’s competing for customers. No ISP can take an isolated view of what to charge its customers, as a monopoly provider might do. We have to continually take account of dynamic market changes. Apart from pricing, ISPs are also constantly making decisions on how they choose to deliver value to customers, and we will all try and do it in the way that gives us a competitive advantage.

So, in terms of putting specific numbers on it, because the market is so competitive we don’t intend letting our competitors know about our pricing plans a year in advance. We also don’t have enough certainty at this point in time as to what the final wholesale prices or other market factors will be in a year’s time.

RAW DATA: Vodafone statement

 We believe the whole copper pricing debate is a wholesale one and not a retail one.  Telecommunications regulation deals with wholesale markets.

We note that other ISPs (including Orcon and Slingshot) have made statements about their intentions with respect to pass through of savings in wholesale copper pricing.  We share the view of the Commerce Commission that the retail market for broadband is highly competitive and that if some players lead with price cuts, the others will have to follow.

In the Commission’s clearance of the Vodafone acquisition of TelstraClear in 2012 the Commission said:

“The Commission considers that, post acquisition, Orcon and Slingshot will continue to act as aggressive, price leading competitors in the market. While they lack the scale of Telecom or the merged entity, they are able to compete effectively, especially in areas where they have unbundled (where Vodafone’s fixed network is largest). The Commission considers that, post acquisition, Orcon and Slingshot will provide competitive constraint on the merged entity.”  (Para 219)

That has certainly been our experience since the merger took place and we expect it to continue.