Reducing uncertainty in price regulation for fibre-based, open-access platforms

Abstract

In many jurisdictions, regulation of telecommunications operators has been based on analysis of the forward-looking costs over the long run of an efficient operator. One acronym for this regulatory methodology is “TSLRIC” (Total Services Long Run Incremental Cost) which, as defined in New Zealand, means “the forward-looking costs over the long run of the total quantity of the facilities and functions that are directly attributable to, or reasonably identifiable as incremental to, the service, taking into account the service provider’s provision of other telecommunications services; and includes a reasonable allocation of forward-looking common costs.” (New Zealand Telecommunications Act 2001) This regulatory approach, which focusses on the forward-looking replacement cost of an operator’s network, was viewed as assisting achievement of a number of objectives including efficient decisions, both by incumbents regarding technology choices and by potential competitors regarding bypass of the incumbent’s network. Dissatisfaction with practicalities, including a conclusion that the TSLRIC methodology involves arbitrary decisions rather than being predictable, has lead a growing number of jurisdictions to change their telecommunication regulatory approach to an alternative approach. This focusses on historic costs and is often described as a Building Blocks Modelling (BBM) methodology. This approach is viewed as assisting the objective of combining the provision of incentives for the regulated entity to invest together with the objective of ensuring that the profits of monopoly providers are limited to protect end-users from exploitation. The UK and Australia have already changed the methodology of fixed-line telecommunications regulation to the BBM methodology. In New Zealand’s case the government has announced it intends to make this change and that it will do so by largely copying the existing BBM regulatory methodology that currently applies to electricity lines and gas pipeline businesses. Since 2011 New Zealand the major fixed-line network provider and three new fibre companies have been building a nationwide, fibre-to-the-home broadband network known as the UltraFast Broadband (UFB) network with the assistance of government financing. Each company operates as the sole UFB fibre provider on a determined geographical region. It is expected construction will be finished by 2019. Conditions imposed on the new fibre networks are such that their owner companies are forbidden to sell services to end-users; instead it is mandated, via an open-access requirement, to sell wholesale access to any service retailer that wants to operate end-user services on the network. The technical and regulatory conditions imposed on the fibre networks actually turn them into open access, broadband platforms.