Chorus shares drop as the Commerce Commission recommends cutting the price to access the company's copper network. Photo supplied.
Urgent action by the Government is needed to protect the
investments of more than 30,000 New Zealanders in
infrastructure company Chorus, Craigs Investment Partners
broker Chris Timms says.
Chorus shares dropped 8% yesterday following an announcement
by the Commerce Commission that Chorus must cut the price it
charges for use of its copper network.
Many KiwiSaver funds had investments in Chorus, meaning the
retirement plans of many more thousands of New Zealanders
were at risk because of the commission announcement, he said.
Chorus operates New Zealand's copper wire network, selling
access at a regulated price to competitors. The monthly
wholesale price per line, the commission decided, was $34.44,
a cut of 23%, slightly more than the $32.45 per month the
regulator announced in a draft decision. The final price is
well outside the Government's proposed range for copper
broadband prices of $37.50 to $42.50. The present access
price to the copper network is $44.98.
Mr Timms took issue with the ''arrogance'' of the commission
in releasing its final determination when it knew it was
working to outdated legislation, something that was about to
''These people sit in their ivory towers making these
decisions while getting plenty of indications what the
Government wants to do. It is all right for these critics of
Chorus to go on about the price, but ultimately they may not
get ultra-fast broadband.
''Once again we have a regulatory authority hitting
hard-working New Zealanders in the back pocket,'' Mr Timms
There was a ''real risk'' Chorus could ''tip up'' without the
intervention of the Government. Chorus chief executive Mark
Ratcliffe said the pricing announced by the commission would
wipe about $142 million off its profit forecasts, based on
connection numbers at September 30.
''The unbundled broadband access [UBA] announced today would
imply around $1 billion funding shortfall by 2020, reflecting
a combination of loss of operating cash flow, reduced
borrowing capacity and increased interest and funding
Without government intervention, the loss of revenue would
have two negative consequences. Chorus would have much less
cash every year to invest and it would not be able to borrow
the sums of money it needed to make up to a $3 billion
investment in ultra-fast broadband, he said.
Prime Minister John Key said the impact of the price cut
claimed by Chorus could have significant implications in its
capacity to fulfil its obligations under the ultra-fast
broadband contract with the Government.
''So this is, in that regard, quite a serious matter. On the
other side of the coin we just need to think through all of
the issues, what the options might be, what's in the best
interests of everyone.''
The Government was considering how it would respond but would
not rule out legislating over the top of the Commerce
Commission's decision or even taking an equity stake in
''The Government is now going to go away and consider all of
the options, have some discussions with industry players and
see what happens next. Our primary concern is to ensure
ultra-fast broadband is built and can be rolled out to New
Zealanders - but we'll just need to work our way through all
of these particular issues,'' Mr Key said.
He warned against jumping to the conclusion the cut in
wholesale copper prices put forward by the commission would
result in cheaper prices for consumers.
Mr Ratcliffe issued some stern warnings about the issues
Chorus would now deal with.
It would discuss the decision with existing lenders as well
as the rating agencies who analyse the credit-worthiness of
Chorus. Chorus was placed on an ''outlook negative'' in March
following a review initiated when the draft UBA decision was
Chorus would notify its bank lenders without the anticipated
government intervention, the price change was likely to have
a material adverse effect on the group on December 1, 2014,
under the terms of current borrowing arrangements. If that
occurred, lenders would be entitled to trigger a default.
Mr Ratcliffe said the combination of significantly reduced
operating cash flows, reduced borrowing capacity and
increased cost of capital fundamentally changed the business
model envisaged before the demerger from Telecom.
Chorus would also discuss with the Crown whether it was still
a credible UFB partner in the way intended at demerger and
how Chorus might deliver the balance of its programme despite
the material funding gap in Chorus' business, implied by the
At a glance
Unbundled bitstream access (UBA) price of $10.92, is an
increase from the draft price of $8.93.
When added to the present unbundled copper local loop (UCLL)
price, this gives a combined wholesale copper price of $34.44
compared with the present price of $44.98 and the entry level
fibre price of $37.50 to $42.50.
CallPlus and Slingshot chief executive Mark Callender said
New Zealanders would benefit from the Commerce Commission
determination, provided the Government did not intervene.
''The commission has done its job and now the Government
should not intervene any further. Slingshot has already made
a commitment it will pass through savings to consumers.''
CallPlus and Slingshot were strong supporters of ultra-fast
broadband and the fibre network, but research showed the
copper-based system would be the key delivery method of
broadband through to 2020 and beyond, he said.
The Government's information, communications and technology
and ultra-fast broadband policies were in tatters, Labour
Party leader David Cunliffe said.
''The Government's bizarre suggestion it may bail out or buy
back part of Chorus shows how broken its UFB programme has
become. Just two years after signing the UFB contract with
Chorus, the Government's signature project is in tatters. The
Government knew the Commerce Commission would need to
investigate and should have planned accordingly.''
New Zealand families should not be forced to pay $100 a year
more than the regulator said was needed for broadband just
because the Government negotiated a bad contract, he said.
Telecommunications Users Association chief executive Paul
Brislen said the news was a ''fantastic early Christmas
present'', which from next November would give New Zealand
households and businesses more than $100 million a year more
to be pumped back into the economy.
''Any price the Government might now propose above $34.44 per
month would represent an obvious tax on Kiwi households and
businesses in order to subsidise Chorus, an already highly
Communications and Information Technology Minister Amy ADams
said: ''Now the final UBA price is known, the Government will
consider its options in detail before making any further
Orcon chief executive Greg McAlister said the company would
pass on any copper savings directly to consumers.
''We will cut broadband prices dollar for dollar in line with
the regulatory costs we face. Any savings we see will be
passed through to our customers.''
The assertions by Chorus it needed copper prices to stay
''artificially high'' in order to build the UFB network
seemed convenient for Chorus and unfair to customers who
would be stuck on copper to 2020 and beyond, he said.
By sometime next year, Orcon would be signing up more new
customers to UFB each day than to the copper network but, in
the meantime, copper users should not be subsidising people
who wanted fibre, Mr McAlister said.