Hamish Fletcher

Business reporter for the NZ Herald

Chorus pulls back on investment

Firm to limit spending outside broadband projects and examine raising prices as regulator reviews findings

Workers putting in cable as part of the national ultrafast broadband programme. Photo / APN
Workers putting in cable as part of the national ultrafast broadband programme. Photo / APN

Embattled lines company Chorus will limit new infrastructure investment outside the ultra-fast and rural broadband projects as Commerce Commission price cuts hit its finances.

The company will also look to see if it can increase prices of some products, says chief executive Mark Ratcliffe.

He said this meant Chorus could put up the wholesale price of products like VDSL, a faster broadband service over copper internet lines.

In a letter to shareholders yesterday, Chorus chairwoman Sue Sheldon said the company was likely to need to "cut all discretionary activity, including growth-related capital investment, re-price most of its commercial services, and generally manage for cash" while the regulator goes through a lengthy review of its broadband price findings.

It follows the commission deciding to cut what Chorus charges internet retailers for wholesale access to the copper line network.

The regulator last month slashed one part of the copper line price by 50 per cent and, together with another cut, the total Chorus can charge internet retailers is due to fall by 23 per cent in December next year.

As a result, Chorus says this could see its earnings before interest, tax, depreciation and amortisation fall by $142 million a year and lead to a $1 billion shortfall for the remaining ultra-fast broadband (UFB) build.

Chorus is one of the four private partners building the Government's fibre-based UFB network, due to deliver internet speeds of 100 megabits a second to 75 per cent of the country by 2020.

While the Government indicated it could intervene and set copper prices directly, it now does not have the support in Parliament to do this.

Given the implications the copper-line price cut could have for the UFB project, the Government commissioned Ernst & Young Australia to look into the impact.

The full report is due out today but Chorus indicated last week that without further action by the Government, it was at risk of not meeting its UFB and rural broadband contractual commitments.

At the request of Chorus and other industry players, the commission is now conducting what is called a final pricing principle (FPP) review, which is a more complex approach to working out copper broadband charges than the one employed when it recommended cuts last month.

Expanding on Sheldon's comments in the letter, Ratcliffe said Chorus would minimise infrastructure investment outside the UFB and RBI projects during the commission's review.

"You don't extend your house when you haven't got any money and we'd be in that situation," he said.

Sheldon said in the letter to shareholders that Chorus and New Zealand's reputation as a good place to invest has been severely tarnished "as a consequence of the broken regulatory framework and the political drama that it has given rise to".

"The politics appear to have stymied a policy intervention to date even though the commission's decisions are a symptom of regulations that simply do not align with the Government's policy of a transition to fibre," she said.

Asked who was to blame for this "tarnishing" of reputation, Ratcliffe said: "I don't think it's any one party that's to blame, I suppose, I guess everyone's got a role to play in that."

Questioned whether Chorus was responsible, Ratcliffe said criticism was being levelled at it by investors.

He said: "When people are as frustrated, blame gets attached to lots of people ... looking at who is to blame isn't really the point. We are where we are - let's try to find the most optimal way forward."

Chorus shares closed up 1.1 per cent yesterday at $1.33.

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