Chorus Says Unsure How To Fund Fiber Network After Regulator's Decision

       By Lucy Craymer 

    WELLINGTON, New Zealand--Telecommunications infrastructure company Chorus Ltd. (CNU.NZ) said it is unsure how it will fund the rollout of fiber across New Zealand after a local competition watchdog ruling that, if implemented, would see a cut in the prices Chorus can charge for some of its copper services.

    The New Zealand Commerce Commission earlier Tuesday ruled that pricing for these copper lines--referred to as unbundled bitstream access--must be reduced from Dec. 1, 2014.

    According to Chorus that would see the prices it can charge fall to NZ$34.44 a month for each line, from NZ$44.85 currently, reducing its annual earnings before interest, tax depreciation and amortization by an estimated 142 million New Zealand dollars (US$118 million). The move was flagged in a draft decision in December last year.

    Whether the watchdog's ruling will be implemented remains uncertain. The New Zealand government is currently undertaking a review of the guidelines the Commerce Commission should follow in setting copper prices--a discussion document in August agreed prices should be reduced, but by less than the regulator wants.

    Amy Adams, minister responsible for the sector, said Tuesday the government would consider its options in detail before making any further decisions.

    Chorus argues that if prices for the copper network are too low, migration to the new fiber network won't occur; also, revenue from the old network is needed to subsidize the building of the new network.

    "Without the proposed government intervention, the loss of these revenues would have two very negative consequences for Chorus' funding ability," Chorus Chief Executive Mark Ratcliffe said. "We would have much less cash every year to invest and we simply will not be able to borrow the sums of money we need to make up to a NZ$3 billion investment in UFB."

    Chorus estimates that if the ruling is implemented it would face an around NZ$1 billion funding shortfall by 2020. It said it will notify its lenders that the ruling is likely to have a "material adverse effect" under its borrowing arrangement.

    "If this did occur (the ruling coming into effect) lenders would be entitled to trigger an event of default," it said.

    Chorus was spun off from Telecom Corp. of New Zealand (TEL.NZ) in December 2011 and now owns the majority of the country's copper and broadband network. Other network companies use Chorus's copper network to provide services to retailers in areas where they don't have a network or equipment in local exchanges. Its monopoly position means it is heavily regulated by the Commerce Commission.

    Chorus is also building the majority of a government-supported nationwide broadband network which will be able to be accessed by some 830,900 premises by the end of 2019.

    Chorus said it would discuss with the government whether it is still a "credible" partner in the broadband build and how it can deliver the balance of its program despite the funding gap.

    Chorus's shares are down 7.2% at NZ$2.44 at 2215 GMT, compared with a largely unchanged NZX-50.

    Write to Lucy Craymer at