Spark warns prices may increase

Simon Moutter.
Simon Moutter.
Spark New Zealand has warned its broadband and landline prices may rise following the Commerce Commission's release yesterday on the prices Chorus can charge for its copper wire network.

Spark, formerly Telecom, was caught by surprise, chief executive Simon Moutter said.

''We are now facing costs approximately $60 million a year higher than we previously anticipated. [This] will affect all our fixed services, not just broadband services.''

However, Chorus chief executive Mark Ratcliffe said consumers should not expect to see increases in retail pricing.

Chorus shares rose 17% after the announcement and Spark's share price fell more than 3%.

Mr Moutter's comments sparked outrage on social media.

People accused the company of having a monopoly for a long time but still wanting to extract the ''last possible dollar'' out of its customers.

One commentator suggested Spark customers would seek alternative providers.

Mr Moutter said Spark had anticipated a $10 reduction in broadband costs, which had been reflected in its current customer pricing.

''We didn't expect ... a $5 increase in the cost for a residential or business line, for both broadband and stand-alone voice services. All of this comes on top of recently implemented increases in Chorus connection charges for broadband services.''

Market competition meant the anticipated reduction in wholesale broadband charges - as signalled by the commission as far back as December 2012 - had already flowed through into retail broadband prices, he said.

Spark's basic $75 broadband plus home phone plan would have cost $105 three years ago.

In that time, the company's wholesale costs had barely moved, until the new charges yesterday.

Spark felt it had no choice but to undertake an urgent review of its current pricing, Mr Moutter said.

CallPlus chief executive Mark Callander was also caught by surprise and said CallPlus would consider its options in coming days.

Mr Ratcliffe would also review the commission announcement and work with the commission until the draft prices were finalised.

The aggregate price represented about a $6.50 fall from the regulated wholesale price of $44.98 in place until Monday and consumers should not expect any increase in retail pricing.

On the basis all other charges and demand remained consistent, Chorus estimated the draft final pricing principle represented an $80 million annualised reduction in operating profit from demerger pricing, based on connection numbers at September 30, compared with a reduction of around $170 million Chorus identified from the commission's earlier pricing decisions.

Craigs Investment Partner Chris Timms said the decision would add more certainty to the performance and share price of Chorus and could lead to the reintroduction of dividend payments at some stage.

Forsyth Barr broker Andrew Rooney said instead of Chorus revenues falling by $11.7 millon a month, the fall was reduced to $4.4 million a month.

The final price was locked in at between $37.50 and $40, aligning with Mr Rooney's assumption of a $38.75 price.

''The other affected party is Spark. It has factored in a saving of $7 million per month from lower Chorus charges.

"If this pricing is confirmed, we believe the pricing will apply until April, after which Spark's savings will fall to a $3 million saving per month,'' he said.

 


What you need to know

 

TERMS

UCLL: Unbundled copper local loop, the copper lines Chorus owns and maintains. The copper network is the means for delivering telephone and internet services around the country.

SLU: Sub-loop unbundling, where part of the copper network is unbundled by a company placing a small cabinet on the copper network and using a cable to connect to a home or a business.

UBA: Unbundled bitstream access, the service Chorus sells to retail telecommunications companies so they can provide broadband services.

 

DRAFT PRICING

UCLL price of $28.22 compared with $23.52 now.

SLU price of $14.45 compared with $14.21 now.

UBA price of $10.17 compared with $10.92 now.


 

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