New Zealand’s Commerce Commission is seeking feedback on its approach to determining the value of the financial loss asset for the new regulatory regime being developed for fibre service providers. The financial loss asset compensates Chorus and the local fibre companies (LFCs) for the financial losses incurred during the initial period of operating Ultra-Fast Broadband (UFB) networks before demand met supply. It forms part of the regulatory asset base on which fibre service providers are able to earn a return once the new regulatory regime is implemented in January 2022. The Commission’s consultation includes the methodology for calculating the financial loss asset, including the risk-free rate, and the treatment of investments that pre-date the government’s UFB initiative.
‘Our proposed changes involve adopting a discounted cash flow approach, rather than the building blocks approach previously proposed in our November 2019 draft decision,’ Telecommunications Commissioner Tristan Gilbertson said. ‘The discounted cash flow approach on its own delivers broadly similar outcomes to the building blocks approach. However, we prefer this approach because it is easier to understand and more familiar to investment analysts. This, in turn, promotes transparency of the calculation, which is an important part of the new regime.’
Submissions are due by 3 September 2020 and cross-submissions by 24 September 2020. The Commission plans to publish its final decisions on the design of the other elements of the new regulatory regime on 13 October 2020, and its final decisions on rules for determining the financial loss asset on 3 November 2020.