Hamish Fletcher

Hamish Fletcher is a business reporter for the NZ Herald

Broadband price cut 'misguided' says angry investor

Workman pictured at work feeding ducting for the ultrafast broadband network into freshly drilled tunnel in Tauranga. Photo / NZ Herald
Workman pictured at work feeding ducting for the ultrafast broadband network into freshly drilled tunnel in Tauranga. Photo / NZ Herald

A Chorus investor - who is also on the Shareholders' Association board - has lashed out in a personal email to the Commerce Commission's Stephen Gale and said yesterday's broadband price cut was a "misguided decision".

The regulator's ruling, which cut wholesale broadband prices by 23 per cent, wiped $71 million off Chorus' value yesterday.

The new prices would come into effect by December 2014, even though Chorus is getting the commission to undergo a full review of the charges.

The Government could also intervene in the market and set prices at a higher level than the commission has.

Grant Diggle, who is a director of the Shareholders' Association, has personally written to Telecommunications Commissioner Stephen Gale and said he could well be to blame if the ultra-fast broadband project was not completed.

"I said to him, in my opinion, he could well be the reason we don't get ultra-fast broadband delivered. If Chorus can't do it and nobody else can do it because they can't make a return on investment, it won't happen," Diggle said.

Chorus said yesterday that if the regulator's cuts come into force, it would not be able to borrow enough money to invest $3 billion in UFB.

"The Commissioner is frankly out of order and he hasn't thought through the unintended consequences of his actions," Diggle said.

'I think it was a totally misguided decision and I think he took far too much notice of self-interested groups.... I think he listened to them and he didn't take full cognisance of the realities of the marketplace," Diggle said.

The Chorus shareholder said he told Gale there was no guarantee any telcos would pass cuts onto consumers. This is despite assurances from Orcon and Slingshot that they would.

He also make the point to the commissioner that members of "generation X and generation Y" wouldn't want to put money into the sharemarket when a regulator can come in and make a ruling that would "destroy their investment".

The same was true for foreign investors, Diggle said in the email.

But asked if he was going to keep his Chorus shares, Diggle said:

"At this stage I'm hoping wiser counsel will prevail and the Government will take appropriate action to rein in Dr Gale," he said.

He also stressed his correspondence to Gale was a "personal matter" between him and Gale.

"It is nothing to do with the Shareholders Association," Diggle said.

The Commerce Commission's decision to cut the copper network price has prompted Moody's Investors Service to put Chorus's credit rating placed on review for a possible downgrade.

The company's Baa2 rating, the second-lowest investment grade rating, was already on negative outlook at Moody's because of the regulatory uncertainty.

"The rating review reflects the material impact which the regulatory decision will have on Chorus's financial profile," Moody's senior analyst Maurice O'Connell said in a statement.

He said the existing rating takes into account Moody's expectation of gradually increasing debt and negative free cash flow until 2019 as Chorus invests in ultrafast broadband.

The regulator's decision "will exacerbate Chorus's negative free cashflow position and lead to a materially elevated leverage, putting significant pressure on the company's key financial metrics," he said. The outcome of the review will depend on what Chorus can do to mitigate the negative financial impact.

with BusinessDesk

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on red akl_n6 at 21 Aug 2014 16:55:28 Processing Time: 464ms