In a digital world increasingly defined by the speed of broadband access the government policy that ensures this inequity is indefensible
In the hullabaloo that was Christmas Eve, there were no blaring headlines trumpeting just how internationally competitive nor how over priced, our broadband services are.

Such contradictions are contained in the Commerce Commission’s report on fixed-line phone and broadband retail services.

Last year, a separate benchmarking study of wholesale broadband pricing put the Commerce Commission at odds with the government and Chorus.  That debate arose from a statutory obligation on Comcom to regulate the wholesale price of certain telecommunications services.  This retail benchmarking report, also released as a requirement under the Telecommunications Act, is about monitoring retail telecommunications markets.

The Comcom report benchmarks three services.  For the first time, the study bundles broadband services with conventional phone services.  It also covers naked broadband and separated voice services. Previous reports also covered mobile services which will be the subject of a subsequent Comcom report.

The Commerce Commission notes some imprecision in the data due to differences in the timing of exchange rate values and broadband plan prices.  It also notes that the results are affected by many factors so care should be taken in drawing conclusions.

The report highlights that for the average New Zealand user, fixed-line stand-alone voice services are comparatively expensive.

Out of the 34 OECD countries included in the benchmark, we rank 34th and 43% more expensive for a user averaging 60 calls per month.

The reason is that Telecom must provide free local calls as a requirement under the Telecommunications Service Obligation (TSO).  Telecom recover the cost of free local calls with a high fixed monthly charge to have a phone connected.

The TSO is currently being reviewed and it appears likely that the government will remove the requirement for free local calling.

This is fine because the use of the home phone for voice calls is declining.

This decline is partly a consequence of increased mobile phone use on smart phones with price plans that include hundreds of minutes of voice calls each month.

Further, as fibre-based broadband connections grow, so copper-based telephone connections will decline because customers will not tolerate the fixed costs of having both fibre and copper lines.

Also, many copper-based broadband services include a VOIP (Voice Over Internet Protocol) telephone line that is delivered over the broadband so avoiding the need for a separate copper phone line.

The second service covered by the Comcom report is naked broadband.  This is broadband delivered without an accompanying telephone line.  For this service, New Zealand ranks in the middle for low-volume users, at a price marginally below the OECD average.

The third service covered, bundled broadband + voice services, is the one that most of us now purchase.

The data ranks New Zealand’s low-volume 30GB per month services in the bottom half for both copper-based (17th/28) and fibre-based (14th/19) broadband.  For high-volume 150GB per month services, UFB retail prices ranks us 14th out of 15 comparable countries.

There are a couple of cautious suspicions to be drawn from the report’s data.

First is the suspicion that the entry-level UFB wholesale price ($37.50) is too high.

This is indicated by our 30GB per month services having retail pricing 10% more expensive than the OECD average, with high-volume 150GB per month services being 50% greater.

On the basis that intense competition in the urban fibre market has resulted in slim retail margins, that 10% and 50% excess is unlikely to be the consequence of excessive retail markups.  So it must arise from a comparatively high wholesale price.

With the UFB wholesale price fixed by contract, Comcom are not doing benchmark comparisons as they are for copper-based broadband.  Further study would be required to negate this suspicion.

The second cautious suspicion is that Comcom’s initial price determination for wholesale UBA prices is about right, and therefore, that the government’s contention that the UBA price should be around the UFB contract price, is incorrect.

This is indicated by the 30GB DSL product being 10% more expensive than the OECD average.  Again, retail margins are competitive leaving only an inflated wholesale UBA and/or UCLL price as being the cause.

Significantly, the report does not include RBI fixed-line rural services in the benchmark.

Chart1: broadband retail prices compared

Chart1: broadband retail prices compared

$_Mbps-by-service

Chart2: Broadband service price/Mbps

Broadband prices/Mbps compared

Chart3: Broadband prices/Mbps compared

Chart1 shows that 30GB of RBI services cost the rural user $150 per month.  This is 120% more than the bench marked OECD average price for bundled DSL services.  The cost of New Zealand bundled DSL services ($75) is itself 10% greater than the OECD benchmark.

The Comcom report and this chart compare only the ticket price for services and ignores the differences in speeds and data caps.  For example, the nominal RBI wireless speed is 5Mbps with a 15GB data cap.

To compare services on a like for like basis, we first need to bring RBI costs up to the equivalent data usage defined in the benchmark (30GB per month) which totals $150 compared to the DSL price of $75 per month.

So for 30GB of data (this volume is close to the national average), rural people pay twice the ticket price for nominal speeds half those of copper and one sixth those of fibre services.

The DSL speed used in the benchmark is 10Mbps.

So on a $/Mbps like for like comparison, that is four times the urban copper price and more than 10 times the fibre price.  This difference for New Zealand services is demonstrated in Chart2.  When compared to the OECD benchmarks (Chart3) the results are telling.

In a digital world increasingly defined by the speed of broadband access the government policy that ensures this inequity is indefensible.