Mobile phones and broadband have become integral in keeping people connected during the lockdown. Photo / Getty Images
Mobile phones and broadband have become integral in keeping people connected during the lockdown. Photo / Getty Images
Monopoly telecommunications infrastructure provider Chorus is coming under intense pressure from retailers Spark, Vodafone, 2degrees and others to shoulder more of the unpaid bills that the sector sees coming at it in coming months.
BusinessDesk has been told of heated scenes at a meeting of the Telecommunications Carriers Forum in Auckland last Friday after Chorus pushed back vigorously on the retailers' demand that it should accept 50 per cent of what one telco executive has dubbed the "wall of bad debt." The sector expects customers won't be able to meet their household bills because of the economic battering being caused by the Covid-19 virus.
Tempers were already running high because Chorus had, that morning, reaffirmed its earnings guidance for the current financial year - a move interpreted by the retailers as meaning it was not expecting to take its share of bad and doubtful debts.
Numerous NZX-listed companies have been suspending and downgrading earnings guidance because of the scale of the crisis on the New Zealand and global economies. However, at this stage, neither Spark nor Vodafone NZ owner Infratil have yet issued any change to existing guidance.
Chorus told BusinessDesk today that it hoped to negotiate a solution with the rest of the sector in the next few days. Last Friday's earnings update was required largely because the company was sharply cutting back its capital expenditure programme for the year because staff and contractors in the field will be unable to undertake network extensions, fibre connections and other work while the covid-19 lockdown is in place.
However, it was not reasonable for Chorus to take on 50 per cent of any emerging bad debt, said spokesman Ian Bonnar.
"We are up for doing our bit, but we are also up for potential bad debt from retailers failing and we have to consider how we keep our service companies going through this time. The work for them has fallen off a cliff."
However, those companies would be needed immediately after the national lockdown lifts, Bonnar said.
"It's not as simplistic as saying: 'can you stump up half?'"
While Friday's meeting "didn't go well", Chorus was "trying to have a reasonable conversation through the Telecommunications Carriers Forum."
Chorus is shielded from telco customers' failure to pay their telephone and broadband bills because its charges are paid by the retailers rather than directly billing the millions of individual customers served by some 80-plus telcos, including Spark, Vodafone NZ, 2degrees and the various brands owned by Vocus, including Slingshot, Orcon, and 2Talk.
For example, on a $65 per month 2degrees bare-bones broadband service, Chorus takes $46.
Unlike the retailers, who set their prices competitively, the amount Chorus charges is regulated by the Commerce Commission. It has indefinitely postponed a planned increase in its charges to telcos in the current environment.
The telco retailers have also been lobbying Communications Minister Kris Faafoi, arguing the government needs to come to the party too and alleviate the likely bad debt problem.
They say telco service providers have gone beyond their commercial terms by guaranteeing they will not cut off any customer for the next six months and by removing impediments to internet access, such as data caps on mobile and home broadband plans.
As part of a series of Covid-19 relief measures announced on March 19, Vodafone said it would waive disconnection fees, and pledged not to disconnect any customer in financial hardship for at least six months. Spark announced similar moves the day before.
Chorus has been reporting record internet usage, which peaked last Friday evening at 3.03 terabytes per second and with usage up roughly a third on pre-covid averages.
The Spark share price has see-sawed this month from a 12-month high of $4.93 on March 6 to a low of $3.74 on last Monday before recovering to $4.14 by the close of NZX trading on Friday.
Despite its regulated status, the Chorus share price has followed a remarkably similar arc, hitting a 12-month high of $7.61 on March 6, bottoming out from a sharp fall at $5.995 a share last Monday, bouncing back to $6.92 on Thursday and taking another sharp downward dip on Friday, to close for the week at $6.55.
