Shares drop, rebound reacting to upbeat Chorus

Chorus has provided the market with some good news. Photo supplied.
Chorus has provided the market with some good news. Photo supplied.
Regulated telecommunications network operator Chorus yesterday finally got to release some good news to the market although its initial information took time to understand.

The company said it had signed new service company agreements for the cost of connections to its ultra-fast broadband network and the new agreements had enabled it to update its connections cost guidance for the current financial year.

Craigs Investment Partners broker Chris Timms said Chorus shares dropped in value straight after the announcement before recovering to their opening price of $2.04. The shares had risen more than 40% in value this year.

Chorus anticipated UFB connection costs of between $1150 and $1350 in the 12 months ending June 30, 2015, compared to a previous range of between $1300 and $1500.

The lower cost came from new contracts with Visionstream and Downer to provide network connections at fixed prices, varied according to agreed deployment types, and covered Auckland, and the lower North and lower South Island UFB areas, he said.

''Chorus doesn't have to pay as much to connect but there are increased connections so the cost is not going down. It is good news for the company as it is forced to roll this out with little help from anyone.''

The company had been under attack from all sides recently and although there was good news in the market release, it was not immediately clear, Mr Timms said.

Chorus maintained its guidance for total capital expenditure on UFB connections in the 2015 year to be between $105 million and $115 million, with volumes running ahead of budget.

''These new contracts and updated pricing are linked to an ongoing national tender process,'' Chorus general manager infrastructure Ed Beattie said.

''With the experience of about 40,000 connections to the fibre network now behind them, daily connection volumes are becoming more consistent and new deployment methods in use, service companies have been able to identify efficiencies earlier than expected.''

Chorus signed six-year contracts with Leighton Holdings-owned Visionstream and Downer in April last year worth about $1 billion, which also included parts of the rural broadband initiative.

It later signed an $88 million deal with Transfield Services in a long-running negotiation, during which time Transfield got a ''please explain'' from the New Zealand firm when subcontractors working for Chorus downed tools after going unpaid for extended periods of time.

Last month, Chorus said it was 34% through the UFB roll-out, with the build completed for 286,000 premises and 386,000 end-users who were within reach of the government-sponsored network.

The network operator had been trying to mitigate the impact of looming regulation on its charges for access to its copper line services, still the bulk of its business, and had sought a final pricing principle (FPP) review by the Commerce Commission, which meant the watchdog would have to determine an economic cost model to find the true cost of the service rather than relying on international experience as a benchmark.

The new contract with Visionstream would apply from December 1 until February 2016, with an option to extend it until the end of 2019 - subject to pricing and performance.

The Downer contract was retrospective from July 1, and ran to the end of February next year.

The fixed rates would also apply to non-standard single-dwelling-unit connections, which Chorus said should enable some reduction in non-standard installation costs.

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