Hamish Fletcher

Hamish Fletcher is a business reporter for the NZ Herald

Chorus contracts review

Changes to ultra-fast-broadband agreements possible but no more money expected

Chorus chief Mark Ratcliffe says he will engage immediately with Crown Fibre Holdings. Photo / Sarah Ivey
Chorus chief Mark Ratcliffe says he will engage immediately with Crown Fibre Holdings. Photo / Sarah Ivey

Chorus' ultra-fast broadband contracts could be changed to ensure the project is not at risk but the embattled lines company isn't expected to get any more money than what is already budgeted for the internet infrastructure build.

Communications Minister Amy Adams said yesterday she had been given an initial report from consultants Ernst & Young Australia, which the Government asked to look into whether Chorus could deliver on its broadband contracts if Commerce Commission cuts to internet pricing came into effect.

These prices - which the regulator last month said should be cut by 23 per cent - concern what Chorus charges internet retailers like Vodafone or Orcon for access and services over the copper network.

The preliminary conclusion from Ernst & Young was that copper price changes will have a significant impact on Chorus' financial position.

Without further action, Chorus was at risk of not meeting its UFB and rural broadband contractual commitments, Adams said.

Chorus shares hit a new low following the announcement, closing down 5.5c yesterday at $1.38.

When the Commerce Commission announced the price cut last month, Chorus claimed the decision would lead to a $1 billion funding shortfall. Adams said Ernst & Young had indicated that even if Chorus had made changes within its business, the Crown would need to act to keep the UFB project out of danger. "If the Crown did nothing there is a risk (to UFB), the Crown has to do something," she said.

Adams said she still expected Chorus to meet "a significant part" of the funding shortfall itself and expected the company to meet with Crown Fibre Holdings to talk about any changes which could be made to UFB contracts.

CFH is the body in charge of the Government's $1.35 billion investment in UFB.

"The first step we will have to do is get Crown Fibre Holdings to talk with Chorus about the changes that could be made within the contract, that aren't going to affect (UFB) build footprint or build time, and come back to us to see if they can find a way through on that basis," Adams said.

"There's a number of options they could look at ... for example, the timing of payments [to Chorus], the structuring of payments, some of the specifics of the build requirements which don't affect service provision or timeframe," she said.

Adams said CFH was still required to work within its "fiscal envelope" for the UFB project of $1.35 billion. At this stage she didn't anticipate CFH needing to come back to the Government and ask for more Crown funds.

The size of Chorus' shortfall was still being finalised and would be outlined in Ernst and Young's final report, due next week.

Chorus chief executive Mark Ratcliffe has said it would "engage immediately with Crown Fibre Holdings with regards to opportunities within the contract".

- NZ Herald

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