Commerce Commission decides not to regulate backhaul

Chorus has announced it will review its backhaul portfolio

The Commerce Commission has decided against any further regulatory intervention in the provision of backhaul services. These services provided by network operators to internet service providers to carry customer traffic between the suburban exchanges and ISPs’ international gateways and content servers, and to mobile operators to carry traffic from cell sites to their gateways and servers.

In the report of its findings, the Commission said it had found several anomalies and errors in Chorus’ backhaul service offerings. “We consider this situation to be indicative of a portfolio that has lacked the appropriate level of attention for a company of Chorus' size and resources,” it said. Chorus has announced it will review its backhaul portfolio.

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

However the commission found no clear evidence of any direct impact on end-users in areas with high backhaul prices.

“RSPs tend to set and market nationwide prices for the different broadband packages, end-users in areas with high intra-regional backhaul prices are not subject to higher retail broadband prices than end-users in areas with lower backhaul prices,” the commission said.

It added: “To the extent that the prices on some intra-regional backhaul links do not reflect efficient costs, these higher backhaul costs might be passed on to end-users through higher nationwide retail prices, than would be the case in a workably competitive market.”

Gale said the commission had decided against regulating the price of even these services, because the higher backhaul charges for them were having only a minor effect on nationwide retail broadband prices, and because the Ministry of Business, Innovation and Employment is due to 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,” Gale said.

However, he left open the possibility of future regulation saying the commission would consider the need for new regulated backhaul services in a review it is required to undertake some time before 2025.

“The timing of the review will depend on the coverage of the new Part 6 regulations and [of the Telecommunications Act] on the extent to which Chorus uses its review to rationalise and explain its backhaul service options and pricing,” Gale said.

The commission started its examination of backhaul services in August 2016, with the release of discussion paper, saying such services were likely to become increasingly important as the Rural Broadband and Ultra Fast Broadband initiatives delivered higher-speed services to more premises, particularly those outside the main urban centres.

The review was put on hold in February 2017 when the Government announced its review the Telecommunications Act. It was restarted in January 2018 when the commission used its information gathering powers to investigate matters raised in submissions its 2016 preliminary questions paper.

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