Chorus on drive to upgrade ADSL

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Chorus is boosting efforts to switch customers using ADSL copper-based broadband services to faster VDSL or fibre technology as it faces increasing competition to its telecommunications network.

Chief executive Mark Ratcliffe, who finishes with the company today, told an analysts' briefing that Chorus will kick off a public campaign in April to educate the public about what broadband options are available and is working more closely with retail service providers to encourage ADSL end-users to choose fibre or upgrade to VDSL, a faster copper-based technology.

"Fibre and VDSL products continue to show strong growth," Ratcliffe said, adding that the company's churn had been on ADSL products.

Wellington-based Chorus's fibre broadband connections jumped 38 per cent to 231,000 in the six months ended December 31 while VDSL broadband connections were up 25 per cent to 199,000. Still, that didn't completely offset a 13 per cent fall in copper connections to 784,000 with total broadband connections down 1 per cent to 1.21 million.

That decline was put down to local fibre companies in other ultra-fast broadband areas gaining market share from Chorus, as well as a marketing push from Spark New Zealand to switch ADSL customers on to wireless broadband options. Last week, Spark said it added 40,000 wireless connections in the half and lifted its annual target to more than 70,000.

Chorus and Spark, its former parent and currently its biggest customer, have been at loggerheads over the security of copper-based services, with the retailer claiming it's prone to faults in inclement weather, while the network operator insists the technology offers "rock solid reliability".

Ratcliffe said wireless broadband was an appropriate technology in areas with poor broadband coverage and for users with low data needs, although that footprint will shrink with the expansion to the government-sponsored UFB programme, which is set to cover 85 per cent of the country's population by 2024.

Chorus got some relief from the Commerce Commission in late 2015 when the regulator decided to wind back some of the price reductions it planned to enforce for the network company's copper infrastructure. Spark passed that wholesale cost on to its customers and has been looking for alternative network options to minimise what it pays Chorus.

Last week, Spark said it would compete more aggressively on price to lift market share among retail broadband providers, where its 675,000 connections were unchanged in the final six months of 2016. Spark's intercarrier costs increased 5.1 per cent to $351 million in the first half of the 2017 financial year, including a 4.9 per cent increase in baseband and access charges to $170m. However, that was still below the $453m it paid in intercarrier fees in the first half of 2015, when baseband and access charges reached $205m.

Chorus reported a doubling of net profit to $66m and a 22 per cent gain in earnings before interest, tax, depreciation and amortisation to $335m on revenue of $529m. That was ahead of expectations, however Chorus changed the way it recognises some spending, and will capitalise about $23m of labour and IT costs in the 2017 year which it previously would have accounted as an expense.

Combined with about $15m of new competitive initiatives led to an increase in guidance for ebitda to be between $645m and $665m, having previously been seen at between $625m and $645m.

Chief financial officer Andy Carroll said the guidance didn't alter dividend guidance, which is still expected to be 21 cents per share for the year, with an 8.5 cent interim payment announced today.

Chorus shares fell 1.7 per cent to $4.08 today, while Spark shares gained 0.3 per cent to $3.49.