Chorus shares slip on draft maximum allowable revenue figure

Chorus CEO JB Rousselot says investors will be scared off future public-private projects if the Commerce Commission takes to hard a line on what his company can earn from the UFB.

Chorus slipped 2.47 per cent to $6.31 as the network operator had a setback in its ongoing, multistage tussle with the Commerce Commission over maximum allowable revenue.

The stock is now down 14.31 per cent for the year.

In a draft decision released this morning, the regulator proposed Chorus' annual revenue from UFB fibre be capped at $689 million for 2022, rising to $786m in 2024, in line with forecast demand.

Earlier this month, Chorus submitted that its maximum allowable revenue for the period should be around 4 per cent higher at $720m, rising to $820m.

The two sides are also at odds over how much Chorus can spend during the first three years of the new regulatory regime which, subject to no further delays, will kick off on January 1 next year.

The Commission proposes to reduce Chorus' expenditure allowance across the period by $210 million (in real dollars), or 14 per cent less than the company wanted.

The two sides have opposing views on market demand for broadband and inflation, among other factors, over the next three years.

Chorus did not immediately offer detailed comment on ComCom's draft.

In a statement, chief executive JB Rousselot said, "Chorus will review the Commission's decision carefully and a key focus area for its submissions will be ensuring the expenditure allowed by the Commission can support the ongoing rollout and operation of our world-class fibre network."

He said today's draft "doesn't reflect critical decisions yet to be made by the Commission on the initial value of the fibre network. Risk-free rate and inflation assumptions will also need to be updated when the Commission makes its final decision."

There will be at least five more rounds of the ComCom vs Chorus bunfight before the new regulatory regime is finalised.

The next will be in August, when the regulator releases its draft decision on Chorus' regulated asset base (RAB).

In an intertwined process, the ComCom will also have to set regulated anchor pricing for a 100Mbit/s UFB fibe connection (the most common type of UFB plan).

The new regulatory era will also see Chorus able to rip out copper lines - or at least stop offering service over them - in areas where UFB fibre is available, subject to consumer-protection guidelines still being finalised by the ComCom.

Chorus shares slid in the latter part of 2020 as the company emphasised it would sharply increase dividends once the heavy-spending days of the public-private Ultrafast Broadband (UFB) rollout (now wrapping up) were behind it. The company paid a full-year dividend of 21 cents per share last year. Most analysts see that at least doubling in the years ahead.

However, Rousselot qualified that the higher profit payout would be contingent on a favourable regulatory outcome.

In February, the Chorus CEO told analysts that if the ComCom took too hard a line, dividends could be put under pressure - and investors scared off supporting future public-private projects,