The high level story for Chorus was the 18,000 fall in its fixed-line connection numbers in the three months ended September, Forsyth Barr broker Suzanne Kinnaird says.
Chorus had warned investors to expect a fall in connection numbers as Spark migrated about 20,000 customers from dual copper/fibre connections during the 2016 financial year, and as the effects of competing fixed-line options in areas such as Christchurch and Tauranga started showing.
''Below this level, we see that unbundling - service providers putting broadband electronics into exchanges - has stalled with actual connections of this type declining.''
More importantly, the number of naked and baseband IP lines increased 10% to 176,000. Both of those services represented end users no longer consumers of Spark's fixed-line service, she said.
Chorus expected its fibre base to grow by about 80,000 connections in the 2016 financial year as customers migrated from copper broadband to fibre services and as new households were constructed.
Total broadband connections continued to grow, despite falling fixed-line connection numbers.
''We would typically expect that as a fixed connection is lost, Chorus will also lose a broadband connection - with the exception of the migration of the 20,000 dual-line Spark customers. Chorus is managing to reverse this trend as demand for broadband connective continues to increase.''
However, Ms Kinnaird expected broadband growth to eventually slow as Chorus would have been benefiting from the Rural Broadband Initiative.
The programme had expanded the footprint of broadband in rural areas but was nearing completion.
With connection numbers following expected trends, the near-term focus would continue to be upon the final pricing principle reviews for the copper and broadband services.
Those remained due in December.
Once pricing had been confirmed, Chorus was expected to announce it would restart dividends at its first-half result announcement in February.
Looking ahead, Chorus would manage a fibre network covering 50% of premises in New Zealand once completed. Completing of the UFB programme would complete its major investment for the next 30 years.
The Commerce Commission pricing decision would underpin Chorus' ability to pay for the completion of the UFB build.
Key drivers
• Copper revenue: More than 80% of Chorus' revenues are generated on its copper network. Prices are regulated and are under review.
• Cost per premises passed (CPPP): Chorus has now agreed fixed price contracts for the majority of its UFB build programme. This covers work down the street.
• Cost per premises connected (CPPC): With only a relatively small number of fibre connections, the final cost to connect all homes to fibre is uncertain.
Company issues
• MBIE review of telecommunications regulation: Likely to take at least two years, this review will set the foundation for regulating the industry.
• UFB expansion: The Government intends expanding the UFB network to cover an additional 5% of homes, taking coverage to 80%.
• Competing fibre network expanding: Eventually 25% of Chorus' current network will face competition from competing network providers, changing industry dynamics.
Upcoming events
• Cost review and dividends: The Commerce Commission is due to complete its input cost review by December, providing pricing certainty. Chorus will restart dividends once pricing has been finalised.
• Fibre CPPC updates: As Chorus connects more premises it will be able to better predict the final cost of constructing its share of the UFB network.
Key risks
• Cost review: Any restart of dividends by Chorus will depend upon the final prices set by the Commerce Commission and any potential legal challenge.
• Final UFB costs: Uncertainty around eventual costs to connect all premises to fibre and managing the cost of expanding the UFB network.
