Chorus shares ended the day down 8 per cent to $7.07, having earlier lost 9.88 per cent, after the network operator made two disclosures to the NZX - one bemoaning a what it saw as a last-minute change by the Commerce Commission to the post-2020 rules of the telco game, the other noting that Covid lockdowns hit its UFB fibre installation business.
Today's dip came after a sustained run-up that saw Chorus shares reach an all-time high of $7.95 recently after its strong first-half result and hints of a fatter dividend. The stock is still up 36.6 per cent for the year.
The first announcement was expected. Chorus had already warned that level 4 lockdowns would hit UFB installations, which it today said fell by around 15,000 during its financial year fourth quarter because of restrictions on non-essential activity.
The second was a surprise. Chorus said the Commerce Commission had told it there would be a discussion paper coming out in August, which will moot a change to the way Chorus is valued - which will in turn feed into the revenue cap that the regulator will impose, and other operating parameters when an update to the Telecommunications Act comes into effect between January next year and mid-2022.
"The Commission says the changes they are considering in relation to the financial loss asset involve adopting a discounted cash flow approach to valuation, rather than the building blocks approach proposed in its November 2019 draft decisions, and a different treatment of investments that pre-date the UFB Initiative," Chorus said in a statement.
Chorus CEO JB Rousselot said it is disappointing that a potentially significant change of this nature is being considered this late in the commission's process.
The Commerce Commission has been asked for its reaction to Rousselot's comment.
A spokeswoman for the Commerce Commission did not address Rousselot's comment about timing directly, but said, "This morning we updated stakeholders on revised timing for completing our fibre input methodology process following assessment of submissions and cross submissions on a previous consultation. We flagged that we are considering changes to our approach to valuing the financial loss asset and that we would separate the timing of consultation and final decisions in relation to the financial loss asset from the further consultation and final decisions on the remaining input methodologies.
"More detail regarding the potential changes will be provided in a further consultation paper to be published on 13 August on which stakeholders can comment."
Technology Users Association of NZ head Craig Young told the Herald, "While it might be disappointing to some that the Commission is proposing changes at this stage to what are quite technical elements in the way the regulation will be applied, we remain comfortable that they are acting to ensure that the outcome will be in the best interests of users, and that it will lead to fair price being paid for services."
On March 27, as many other company's suspended guidance, Chorus reaffirmed its full-year forecast for operating earnings of between $640 to $655 million. Although Covid would halt installations for months, it was also anticipated that cap-ex would fall from $660 to $700m to as low as $610m.
Today, Chorus investment relations manager Brett Jackson said there was no change to that guidance after the announcements.
The company is due to report its full-year result on August 24.
Chorus reiterated today that it had topped up sub-contractors' wage-subsidy payments from the government with $5 million of its own funds, chipped in $2m to help retail ISPs with bad-debt related to the pandemic and put a wholesale price increase for the most popular type of UFB plan on hold until October.
Earlier this week, retail providers Vodafone, Vocus and 2degrees lit into Chorus, saying the October price increase should be scrapped at a time when many households were struggling during the pandemic. They also said $2m was nowhere near enough to cover what they saw as Chorus' share of the bad-debt burden.
Chorus responded that the price increase was needed to allow it to keep investing in its network, which in turn would help aid NZ's economic recovery. It said it would also cut pricing on its highest-performance plan, and its small business plan.