Law change costly for Chorus

Between $9 million and $10 million could be wiped off the operating earnings of telecommunications network operator Chorus following a decision yesterday by the Commerce Commission.

Craigs Investment Partners broker Chris Timms said the latest decision by the commission was another example of bureaucracy eroding the wealth of shareholders.

''This causes uncertainty and we know sharemarkets don't like that. If there is any potential for legislation interfering with a company, you can expect volatility.

''Having an outside agency changing the law makes it difficult for investors to make informed decisions. It becomes a bit of a lottery,'' he said.

The Wellington-based company expects earnings before interest, tax, depreciation and amortisation (ebitda) will be $9 million to $10 million lower in the 12 months ending June 30, as a result of the regulator's decision to align the price for Chorus' unbundled copper low frequency services (UCLFS) with the benchmarked unbundled copper local loop (UCLL), backdated to December 3, 2012. The backdating means Chorus will have to repay its overcharged customers with interest.

After 2014, the company expects ebitda to be about $6 million lower in the subsequent years, in line with its December guidance on the potential regulation.

Chorus said it now expected 2014 ebitda to be between unchanged and 9% lower than last year's $654 million.

UCLFS lets telecommunications companies provide voice services using the low frequency band on the copper local loop network. UCLL lets telecommunications companies use the copper network between an exchange and an end-customer's premises to offer their own voice and broadband services.

The Telecommunications Act requires the UCLFS price to be the same as the UCLL price.

The commission set the UCLFS charges in November 2011, the month Chorus was officially carved out of Telecom, saying at the time it would update the connection and transfer charges for the service once the UCLL pricing review was complete.

In the UCLL determination in 2012, the regulator affirmed its view a single price for the services was appropriate.

The UCLFS component of the copper lines is a small part of Chorus's ongoing dispute with the regulator as to what it can charge for its services.

Chorus has warned the regulation of its unbundled bitstream access services, which lets internet retailers use Chorus components on the copper lines without having to replicate them, could cut ebitda by up to $142 million.


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