Liam Dann 's Opinion

Liam Dann is the business editor of the NZ Herald

Liam Dann: Market will give verdict on Chorus

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The EY report on Chorus' finances is the referral to the video ref we've waited for. Photo / Derek Flynn
The EY report on Chorus' finances is the referral to the video ref we've waited for. Photo / Derek Flynn

Well, this was supposed to be the quirky, light-hearted year-ender column, full of whimsical reflections on the big business events of 2013. But (and you can blame the Government for this) instead it is about Chorus and copper wire and market disclosure. It has been a busy year for business news and it looks like it won't let up for at least another week.

So I'll try to keep it light anyway because, even after 12 months of debate, the technical nuances of the copper pricing debate have done little to help me make up my mind about who is right and who is wrong in this unseemly scrap.

What I do know is that the Minister for Communications and Information Technology, Amy Adams, decided to release the long-awaited independent report into the state of listed telecommunications network company Chorus on Saturday afternoon - possibly the hottest, sunniest, least news consumery day of the summer so far.

You might think that looks a bit cynical: making such an important release at the weekend while no one is paying attention. But perhaps it is just cynical of you to think that.

I certainly thought it looked cynical, but both Steven Joyce (on Twitter) and Amy Adams' office have made it clear they were just doing their duty to disclose this market-sensitive information as soon as possible. Fair enough. It is certainly market-sensitive stuff.

The Ernst & Young (EY) Independent Assessment of Chorus' Financial Position report was never going to be a ripping poolside read but it is important. It is essentially the referral to the video ref that we've all been waiting for.

The report comes after the Commerce Commission decided to regulate the wholesale price that Chorus can charge rival internet providers for its copper network. The commission said prices should be 23 per cent lower than they are by December next year.

Chorus, which is building the largest chunk of the Government's new ultra-fast broadband (UFB) network, said the ruling might put them into credit default or at least hamper the UFB build.

The Government hinted it would legislate to overturn the ruling. Meanwhile, a bunch of internet user groups including internet retailers joined forces to lobby against this.

The Government called for the EY report to get a handle on how dire the Chorus situation was and whether it should intervene. Then the Government's minor party coalition partners all deserted it on the issue anyway - meaning there isn't really much the Government can do about the Commerce Commission ruling. Any assistance to Chorus would now have to be by way of a taxpayer bailout - either directly or through some kind of subsidy involving the renegotiation of the contract for the UFB build.

At least it has all gone something like that. This is the hot summer day version and all the parties involved will have about 12 reasons why this isn't right. In fact they'll be drafting op-ed pieces to send me even as you read this.

So does the report clear things up? Can we all move on from the whole debacle? This seems highly unlikely. Sadly, our video refs at EY weren't limited in their response to: Try or No Try.

The report offers a way forward for Chorus that involves cost cutting, dividend cuts and customer service cuts and possible capital raising. While it represents an admirable effort to share the load between the company, its shareholders and consumers, the reaction of the various parties suggests it won't resolve any differences of opinion.

Both the coalition lobby group and Chorus have welcomed the report, and say it confirms their arguments. Hmm, clearly there is a bit of room for creative interpretation here.

In the end the onus will go back on the Government, which still has to decide whether to assist Chorus or leave it to sink or swim on its own.

I say debacle because the destruction of shareholder wealth over the past year has been nothing short of that. Blame whom you want - Chorus management, the Government, the lobby group - but shareholders have been the big losers.

The share chart speaks for itself. The company has shed half its value in 12 months.

New Zealand, it seems, is just terrible at managing market regulation - regardless of whether Labour or National are in power. And even if Chorus was always destined to face price regulation, the sharemarket sell-offs should not have been so dramatic and panicked. The way this has played out politically has ensured maximum uncertainty.

Uncertainty always hits small shareholders hardest, with the active funds and brokerages far better able to trade in and out with the volatility.

We saw this last week with high-profile fund manager Milford picking that Chorus had hit its "maximum point of uncertainty" and buying in. Milford cleverly publicised this call and with punters following its lead, and the enormous ACC fund making a similar call, Chorus shares spiked late on Thursday and on Friday.

That surge before the release of the EY report prompted Matthew Hooton - a lobbyist working for the coalition of consumer groups and Chorus customers - to suggest there may have been insider trading at play.

In the absence of any evidence to support this, it seems more likely that a couple of funds just picked it right. In a small market like New Zealand a savvy and highly publicised pick from a star fund manager and a large play by a mega-fund like ACC are more than enough to explain the surge in what has been a highly volatile stock.

I'm not going to guess which way the shares will be moving this morning but when trading gets under way the market will provide an honest and spin-free assessment of the EY report and the future for Chorus.

There's been a lot of spin to cut through so hopefully investors and their brokers have had time to read and digest the report. It might not be anyone's idea of a fun weekend read but perhaps the Government got it right this time with the Saturday release - sunny afternoon and all.

- NZ Herald

Liam Dann

Liam Dann is the business editor of the NZ Herald

Liam Dann is the Business editor of the New Zealand Herald, overseeing all our business content in print and online. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy.

Read more by Liam Dann

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