The Commerce Commission was widely expected to reduce the amount Chorus could charge other telecommunications companies for using its copper line network to provide broadband services to New Zealanders.
Instead, the commission increased the pricing from its benchmark $34.44 per month to $38.89 per month.
That equated to a revenue increase of $7 million a month for Chorus. Chorus benefited from an increase in the unbundled copper local loop prices (UCLL) up from $23.52 to $28.22 per month.
Forsyth Barr broker Andrew Rooney said the increase more than offset the fall in the unbundled bitstream access (UBA) broadband services.
''For service providers such as Spark and Vodafone New Zealand, this means a significant reduction in the savings the commission benchmarking process has implied.''
Retail service providers such as Spark, CallPlus or Vodafone had all claimed the lower UBA prices set by the commission's earlier benchmarking process had been factored into market pricing. The implication was consumers could see retail prices rise if the draft prices announced became finalised.
While Chorus investors should be pleased with the result, it was important to remember the commission had provided only draft pricing. There would be a round of submissions due in January 2015, followed by cross-submissions, he said.
''We believe there is an even chance this will lead to a small price increase or decrease on draft levels.''
Mr Rooney warned about getting caught up in the euphoria of the announcement and forgetting it was only a draft price. Other things to deal with included the start of the telecommunications regulatory review, the ongoing construction programme around ultra-fast broadband and increasing competition from other fibre providers.
Those had implications for the entire telecommunications industry, he said.
Key issues: Chorus
The pricing was draft only but still provided some certainty for the company.
The tight pricing band removed any market concerns about the need for capital raising by Chorus. Forsyth Barr also believed it opened up the opportunity for Chorus to provide a dividend from the first half of the 2016 financial year, Mr Rooney said.
Chorus had about 1.7 million copper lines and 1.1 million broadband connections. In time, those would migrate to fibre services, at which point Chorus incurred connection costs for which it had a long-run target cost of $900 to $1000 per customer.
Chorus would also face competition for the 25% of customers on competing ultra-fast broadband networks in Christchurch, the central North Island and Whangarei. The benefit of higher copper prices reduced over time, he said.
Construction risks remained for Chorus and those risks would remain for several years.
Key issues: Spark
The draft pricing was a significant improvement for Chorus but the reverse was true for Spark, Mr Rooney said.
It, and other residential service providers, had commented publicly the lower benchmarked pricing the commission set previously had already been passed on to the market. As a result, consumers might see a price increase if the draft pricing became finalised.
''This is likely to cause consumer confusion as, at a headline number, they will simply see Chorus charging less for its service. We have had the view any price reductions have not been passed on to the market and that Spark will only gain a benefit in 2015 before lower pricing applied to the market.''
The $50 million cost benefit Spark had assumed for the 2015 financial year was likely to fall to $38 million, he said.
Irrespective of what price reductions the market had priced in, Mr Rooney believed Spark risked brand damage if it increased consumer prices for its traditional services.
It also ran the risk of consumer churn if its competitors did not raise prices - or worse, reduced them.
''Only once prices are finalised and Spark has determined its approach to both consumer and wholesale customers will the full implications of any price revisions be clear.
''In our view, Spark will receive a one-time benefit in financial year 2015 only and Chorus' price reductions will flow into the market from 2016. This does not appear to be the assumption Spark has made.''
Labour Party ICT spokeswoman Clare Curran said consumers would bear the brunt of the commission's decision which looked set to increase the monthly cost of broadband over the copper network.
''While Labour supports the commission's role as the independent umpire, we note with concern its decision to raise the wholesale copper price from the interim price creates ongoing uncertainty for telcos and looks set to make things harder for Kiwi consumers in the lead-up to Christmas.''
The only people happy with the outcome seemed to be the Government and Chorus, suggesting the commission should think again, Ms Curran said.
