Indications that Chorus would spend more on capital
expenditure in the 2014 financial year were disappointing,
although the higher costs were expected, Craigs Investment
Partners broker Chris Timms said yesterday.
In the financial results for the year ended June, Chorus
chief executive Mark Ratcliffe said the average cost of
completing the 2013 ultrafast broadband (UFB) installation
was $2935 per premises passed.
Chorus provided guidance it expected to spend $660 million to
$690 million on capital expenditure in the 2014 financial
year and was again targeting an average cost per premises
passed of $2900-$3200 for the year.
Mr Timms said the higher cost reflected the size of the UFB
project and the difficulty of installing fibre in some areas.
Also, the project was taking longer than expected.
''It comes back to further agreement around regulation. How
can you expect Chorus to fund this if you set a far reduced
price around access to the copper network?'' he said.
Chorus, in its first full year after separation from Telecom,
reported operating earnings of $633 million for the period,
up slightly on Craigs' forecasts. Reported profit was $171
million, as opposed to the $166 million forecast by Craigs.
The final dividend of 15.5 cents per share took the total
dividend to 25 cps and Chorus indicated the dividend policy
would remain for this financial year.
Mr Timms said there were no surprises in the result, except
the higher capital expenditure.
Usually, that would mean a lower dividend, but Chorus had
indicated its dividend policy remained intact.
Mr Ratcliffe said investment in the fibre network, primarily
the UFB and rural broadband initiative programmes, accounted
for $579 million, or 85% of the company's $681 million gross
capital expenditure in the year.
''We are making rapid progress in building a fibre future for
New Zealand with more than 3000km of fibre cabling deployed
in just 12 months, taking our total fibre network beyond
At June 30, the UFB network encompassed 205,500 end users, or
153,000 premises, and 51,200 rural end users were within
reach of better broadband.
''Spending almost two-thirds of our revenue on capital
investment is an extraordinary amount for any company,'' Mr
Chorus reported growth of 8000 fixed-line connections for the
year, to a total of $1.8 million, including 90% growth in
fibre connections to 19,000.
Demand for fixed broadband connections continued to grow
steadily, about 64,000 copper broadband connections having
been added in the period.
The company also faced ongoing challenges with the current
A Commerce Commission decision on copper-line pricing in
December had already reduced operating earnings by $20
million on an annualised basis and a recent government
discussion paper proposed a review of the telecommunications
regulatory framework with an immediate focus on copper
''While the outcome of the Government's regulatory review is
uncertain, all potential options contained within the
discussion paper imply reduced future earnings for Chorus.''
Mr Ratcliffe said.
However, Telecommunications Users Association chief executive
Paul Brislen questioned what problem the copper tax was
solving if Chorus was able to post a profit, meet all its
targets and pay a dividend to shareholders.
''Surely at this point in its investment cycle - the first
two years of a once-in-a-lifetime investment - it should be
ploughing money into the deployment of the network rather
than giving money back to shareholders.
''Chorus is clearly profitable, even with its massive cost
blowout in terms of connecting properties to the network. The
customers should not be paying an extra $100 million a year
to Chorus shareholders in addition to the $1.5 billion in
public money we're already giving them,'' he said.