Spark undertakes "urgent review" following higher Chorus wholesale charges

Spark New Zealand said today it was undertaking an "urgent review" of all broadband and fixed voice customer pricing following the announcement by the Commerce Commission of proposed new wholesale rates that Chorus charges retail service providers, including Spark.

“Today’s announcement is unexpected and we are now facing costs approximately $60 million a year higher than we previously anticipated," says Simon Moutter, Managing Director, Spark.

"These higher costs will affect all our fixed services, not just broadband services.

“For the past two years, we have been anticipating a $10 reduction in broadband costs, which has been reflected in our current customer pricing.

"But what we didn’t expect was a $5 increase in the cost for a residential or business line – for both broadband and standalone voice services.

"All of this comes on top of recently implemented increases in Chorus connection charges for broadband services.”

Moutter says intense market competition meant the anticipated reduction in wholesale broadband charges (signalled by the Commerce Commission as far back as December 2012), had already flowed through into retail broadband prices.

“For instance, what you get in our basic $75 broadband plus home phone plan today would have cost you $105 three years ago," he adds.

"In that time, our wholesale costs have barely moved until the new charges came into effect yesterday.”

“Given today’s decision, we feel we have no choice but to undertake an urgent review of our current pricing across both voice and broadband plans.”

Moutter says as well as the surprise increase in line charges, there is now "considerable uncertainty" about when these new charges will take effect – with the possibility of backdating any increase to 1 December 2014.

“This means we will need to take a conservative view now to hedge against any financial exposure from the final decision," he adds.

According to Moutter, today’s announcement "highlights the challenges" as retail broadband providers fiercely compete to give consumers the best possible deals, yet face a continually shifting outlook in terms of their underlying costs.

“This is not a criticism of the Commerce Commission, which as the regulator is required to follow due process – or of the process itself which is inevitably complex given the transition from the previous regulatory regime," he adds.

“Over the last two years, we have consistently called for more certainty to ensure retailers can plan appropriately and deliver customers the best competitive deals.

"We led an initiative seeking an agreed industry solution for wholesale broadband charges, and we also welcomed the Government’s attempt to provide this certainty through legislation.

“Neither came to pass, meaning we - and the rest of the industry - were left with only the initial schedule of charges set out by the Commission in 2012 and 2013 to guide our budgeting and retail pricing.

"These initial charges were finalised by the Commission in November 2013, upheld by the High Court in April 2014 and by the Court of Appeal in September 2014.

"They have been anticipated by Spark and other providers in our existing customer pricing."