Further regulatory intervention not currently needed for telco backhaul services

The Commerce Commission has released its findings on backhaul services in New Zealand and is satisfied that while further regulatory intervention is not necessary at this time, it will continue to monitor backhaul prices and terms.

Telecommunications retailers pay Chorus and the other local fibre companies to handle internet traffic between homes or businesses and suburban exchanges. The retailers also buy ‘backhaul’ from a range of network providers to carry the traffic between the suburban exchanges and the retailers’ international gateways and content servers. Likewise, mobile operators buy backhaul from cell sites to their gateways and servers.

Telecommunications Commissioner Dr Stephen Gale said that the Commission had found that the backhaul market is generally competitive except in some provincial areas where Chorus is the only provider and some links are more expensive.

“On these links Chorus has chosen to use a regulated pricing formula set by benchmarking in 2008. The relevant links are longer and carry less traffic but we expected that updated cost benchmarks would now be lower,” Dr Gale said.

“Even so, we don’t propose to regulate at this point. Firstly, the higher backhaul charges are having only a minor effect on nationwide retail broadband prices. Secondly the Ministry of Business, Innovation and Employment will publish a suite of new fibre regulations this year under Part 6 of the Telecommunications Act. The new regulations may bring some of the relevant backhaul services under Chorus’ overall revenue cap, come January 2022.”

The Commission also found several anomalies and errors in Chorus’ backhaul service offerings. Chorus has now announced that it will review its backhaul portfolio.

“We will consider the need for new regulated backhaul services in a review that we are required to undertake some time before 2025. The timing of the review will depend on the coverage of the new Part 6 regulations and on the extent to which Chorus uses its review to rationalise and explain its backhaul service options and pricing,” Dr Gale said.

A copy of the findings paper can be found here.

Background

In August 2016, we started our study into backhaul services to better understand the current state of backhaul services, what they might look like in the future, and whether change may be required to the regulatory framework to better promote competition in the long-term.

We started our study by releasing a Preliminary Questions Paper. Shortly after receiving submissions on this paper, the Government announced it would review the Telecommunications Act. Our study was put on hold in February 2017 while the Government proceeded with its review due to the potential flow-on effects for the study and backhaul services more generally.

In January 2018 we restarted this study following the commencement of the Amendment Bill process. Since then, we have used our information gathering powers to investigate and reach findings on a range of matters raised in submissions on our Preliminary Questions Paper.

/Public Release. View in full here.