Broadband price cut sees Chorus shares tumble

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

The Government will tomorrow reveal more on its response to the Commerce Commission slashing broadband prices as Chorus' share price continues to tumble.

Earlier this year the Government proposed to set wholesale internet prices itself and overrule the regulator, which on Tuesday cut broadband charges by 23 per cent.

The prices concerned are what infrastructure company Chorus charges internet retailers such as Orcon or Vodafone for monthly broadband services and line access over its copper network.

While yesterday's cut was not as severe as the almost 28 per cent price drop the regulator tabled in a draft decision last year, Chorus said the move would hit its earnings before interest, tax, depreciation and amortisation (ebitda) by $142 million each year.

Chorus, which owns the copper infrastructure but is also building the fibre-based ultra-fast broadband (UFB) network, claimed the decision would lead to a $1 billion funding shortfall.

Chorus chief executive Mark Ratcliffe said it meant the company "simply will not be able to borrow the sums of money we need to make up to a $3 billion investment in UFB".

The company's share price fell 6.84 per cent yesterday and another 5.5 per cent today, closing at $2.315.

Rating agencies Standard & Poor's and Moody's said today they are both reviewing the company's credit rating following the regulator's cut.

Prime Minister John Key said yesterday the Government was considering how it would respond to the situation but would not rule out legislating over the top of the Commerce Commission's decision, lending money to Chorus or even taking an equity stake in the company.

Key told Parliament today that Communications Amy Adams was likely to indicate tomorrow how the Government would "try and understand" the commission's ruling and "what other possible alternatives and options [are] available".

Asked by the Herald this afternoon if the Government would be announcing what options it would be taking up or not, Adams replied:

"We're going to be announcing how we sort of see this playing out from here and what our next steps are."

Adams said the Government was making sure it had good information on the impact of the regulator's decision and on what it needed to consider.

She said the Government already has non-voting preference shares in Chorus and that it would continue to hold this stake.

"But no-one's looking to nationalise this company, that's not something that's front of mind for us," she said.

Labour's associate Communications and IT spokesperson Clare Curran said the "only responsible position" for the Government was to uphold the regulator's decision.

"Any bail-out, equity stake or loan will be corporate welfare," she said today.

"The Government's behaviour over Chorus has been bizarre. They appear to be against any move to provide Kiwi households with lower prices," she said.

Forsyth Barr senior equity analyst Blair Galpin said he didn't expect a final decision on what the Government would do by the end of the year.

"You would expect they would take a bit of time to come to any sort of final decision," Galpin said.

"But they could give a signal before that," he said.

- additional reporting: Adam Bennett

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