Chorus price falls on hint of fee drop

Move to increase regulation bad look ahead of SOE listing, expert warns.

The Commerce Commission's moves to introduce cheaper access to New Zealand's copper line network is spooking international investors, which does not bode well for the Government's plans to list a number of state-owned enterprises, a fund manager says.

Shares in lines company Chorus tumbled 27c to close at $3.25 yesterday after the regulator indicated in a draft determination that it wanted to reduce over two years the geographically averaged unbundled copper local loop (UCLL) service to $19.75 a month from its current price of $24.46.

UCLL enables Chorus' competitors to use the copper network between an exchange and an end-customer's premises to offer their own voice and broadband services.

Chorus said the draft decision, if ratified, would impact on about 6 per cent of its copper-based access services, based on current volumes, and foreshadows more regulator intervention.

The commission is also consulting on whether there are grounds to investigate the pricing principles for the unbundled copper low frequency service (UCLFS).

UCLFS lets telecommunications companies access and connect with the low frequency in Chorus' copper local loop network, which connects an end-user's building to the handover point in the local phone exchange.

Paul Harrison, head of equities at BT Asset Management, questioned why the regulator released its draft decision yesterday.

"Why do this now when you don't know the implications of what you're going to do down the track?"

Harrison said the announcement had added "a whole lot of uncertainty into the mix".

Brokers had promoted Chorus' split from Telecom to international investors, who - as a result of the regulator's moves on copper pricing - may be wary about investing in New Zealand again, which would be unhelpful for the upcoming state-asset listings, Harrison said.

"We're seeing offshore investors selling [Chorus] heavily," he said. "They're just tipping it out because they just don't like the uncertainty or the prospect of regulatory issues around Chorus."

Chorus said it was disappointed with the draft decision as it created uncertainty for investors and industry. "At a time when New Zealand is making a significant investment in building a fibre world, Chorus is concerned that the commission's draft decision creates a potential disincentive for retail service providers and end customers to transition to fibre services," the company said.

Wholesale prices for access to the copper lines were averaged as a result of legislation enabling Telecom to carve out its Chorus unit last year, something that rankled with rival telecommunications companies who claimed it would lift their costs.

The de-averaged urban and non-urban prices are $15.82 and $29.19 respectively, the regulator said.

At the time, Ministry of Economic Development officials downplayed concerns about the impact on copper-line prices, saying it wasn't "deemed significant" and that any increase in UCLL pricing may "have the positive impact of encouraging more investment and innovation in fibre".