Telecommunications wholesaler Chorus could have between $150
million to $170 million wiped off its operating profit if
decisions announced yesterday by the Commerce Commission are
Chorus chief executive officer Mark Ratcliffe urged the
Government to bring forward the regulatory review required by
legislation in 2016 after the Commerce Commission report
Chorus wanted the review carried out earlier to bring about a
sustainable framework next year that would support the
ultrafast broadband (UFB) vision.
"At a time when New Zealand needs economic efficiency,
productivity and social progress enabled by public private
partnerships, today's decisions are a significant step
The whole telecommunications industry needed to be aligned to
a transition to fibre if New Zealand was to get better
broadband and new innovative services and applications, Mr
The Commerce Commission released a final determination on
unbundled copper local loop (UCLL) and a draft regime for
unbundled bitstream access (UBA), conceding ground on the
regime for UCLL while signalling a sharp cut to UBA pricing.
Chorus shares were suspended for a short time yesterday while
the company analysed the decision.
In a later statement to the market, Chorus said the
annualised impact on its operating earnings of the UCLL
decisions was a reduction of about $20 million, based on
numbers at June 30 this year
The annualised impact of the UBA monthly rentals, if they
were to become final, would result in operating earnings
reduced by a further $150 million to $160 million from
Mr Ratcliffe said Chorus had "very serious concerns" about
the potential impact of those decisions.
"While noting the UBA decision is a draft, and there is a
process to run, management expects the collective impact of
these two changes - should the UBA decision become final -
would require Chorus to fundamentally rethink its business
model, capital structure and approach to dividends."
The world was watching to see if New Zealand's world-leading
UFB policy and the demerger of Chorus as a wholesale-only
company would be a success story.
Investors did not understand the rational for reducing
copper-based prices at the same time that taxpayers were
supporting a Government-backed generational change to fibre,
"This will significantly reduce fibre uptake."
Shifting the relatively of copper and fibre pricing would
discourage the transition to fibre, Mr Ratcliffe said.
Communications and Information Technology Minister Amy Adams
issued a cautionary statement saying the Government would
consider the report.
The decisions on both prices, taken together, were
potentially significant for the industry and end users.
New Zealand was one of the few countries to have structurally
separated its main telecommunications company while at the
same time rolling out a fibre network.
"This potentially highlights the need for a pricing
methodology appropriate for the New Zealand context," Mrs
Craigs Investment Partners broker Chris Timms said a
reasonable outcome was still likely that would allow dividend
payments to continue. But a downside risk to dividends
"The Commerce Commission acknowledged difficulty within the
existing benchmarking framework and was only able to find two
countries that it considered comparable without a requirement
The regulator set the new UCLL rates at a geographically
averaged price of $23.52 per month per line from December 1,
2014, a 3.9% reduction to the prices set in 2007.
Urban UCLL prices are $19.08 and rural is $35.20, effective
UBA prices will be provisionally set at $32.45 per month,
effective from December 1, 2014, from the existing $44.98.
Mr Timms said the size of the potential reduction in UBA
pricing, and its relativity with fibre, was so great that the
potential of political intervention had clearly increased.
"We remain in a situation with a wide range of potential
outcomes for Chorus' medium-term earnings but our sense is
that something reasonable should prevail," he said