Investors react as Govt proposal to override watchdog lacks support

Chorus shares took another pounding yesterday when it became clear that the Government's proposal to override the Commerce Commission's recommendation to cut wholesale broadband prices would not have the necessary political support to come into effect.

Earlier in the week, all other parties in Parliament, including Government support partners the Maori Party, United Future and Act, said they would not support legislation to overrule the commission's recommendation.

That sent the stock reeling to close at a record low of $1.52 - down 26c from Thursday's close and about half the price it was trading at in July- drawing a "please explain" inquiry from the ASX, where the telecommunications network company is also listed.

Chorus told the ASX that it was not aware of any information but said: "Chorus has been the subject of a range of third party announcements and considerable third party speculation, particularly concerning the UBA [unbundled bitstream access] pricing process."


The network company has said a proposed price cut for wholesale access to its copper lines would force an overhaul of its capital structure and may threaten the taxpayer-subsidised construction of the ultra-fast broadband national fibre cable network.

At current levels, Chorus is at its lowest point since it became a separately listed entity after being split out of Telecom in November 2011.

Shane Solly, portfolio manager at Mint Asset Management, said the decline reflected further erosion of Chorus' reputation as a dividend-yield stock and had cast more doubt on New Zealand regulatory framework in the eyes of international investors.

"There are going to be winners and losers out of this, but New Zealand Inc does not win from these types of events," he said.

Chorus this month withdrew its 2014 dividend guidance of 25.5c per share. Analysts said the issue also raised the possibility of it needing to raise fresh capital. The Government has hired Ernst & Young Australia to undertake a forensic examination of its books to see if it has the financial ability to deal with a commission-imposed cut in wholesale prices.

Paul Brislen, chief executive of the Telecommunications Users Association, said the report would be the next important development in the evolution of broadband in New Zealand. It would determine whether there was a financing problem for Chorus, and whether the dividend had been put at risk.

Brislen said the role of the commission, as a market watchdog, was sacrosanct "and should not be messed with".

He said the Government could offer Chorus more money for the roll-out of ultra-fast broadband, or some guarantees for its borrowing.

"There is a danger that Chorus might not be involved in it, but that won't stop the fibre rollout."

Brislen said there were other contenders who could do the job.

"Chorus is not the only game in town, and it's important that the Government is not hijacked into thinking that."