Chorus shares plunge on ComCom draft fibre pricing decisions

Monday 3rd December 2012

Telecommunications network operator Chorus saw its shares plunge 12 percent at the open of NZX trading following a Commerce Commission a draft decision that would steeply cut what it can charge for access to electronic switchgear used over its ageing copper lines network.

That was in spite of winning some pushback on pricing for the actual lines. The shares plunged 12 percent, or 40 cents, to $3, the lowest since June 21, after the competition regulator released a final determination on unbundled copper local loop (UCLL) and a draft regime for unbundled bitstream access (UBA) today, conceding ground on the regime for copper (UCLL) while signalling a sharp cut to UBA pricing.

The regulator set the new UCLL rates at a geographically averaged price of $23.52 per month per line from Dec. 1, 2014, a 3.9 percent reduction to the prices set in 2007. Urban UCLL prices have been set at $19.08 and rural at $35.20, effective immediately. UBA prices will be provisionally set at $32.45 per month, effective from Dec. 1, 2014, from the existing $44.98.

Telecommunications Commissioner Stephen Gale told a media briefing in Wellington the UBA decision was a draft ruling only, with limited international comparisons, and will go out for consultation with a final decision likely in June. If telecommunications companies are unhappy with the final benchmark, they can request the regulator use a cost-modelling approach to determine pricing instead, he said.

"This (UBA) price when finally decided in two years may have a significant impact on Chorus' revenue," Gale said.

Telecommunications Minister Amy Adams signalled immediate disquiet, saying the the government is reviewing the draft determination, which is "potentially significant for the industry and end users."

"New Zealand is one of the few countries in the world to have structurally separated its main telecommunications company, while at the same time rolling out a fibre network," Adams said. "This potentially highlights the need for a pricing methodology appropriate for the New Zealand context."

Chorus said it is reviewing the potential impact of the announcement and it has "very serious concerns about the effect of these decisions."

The network company said the draft UBA prices would lead to a "very material revenue reduction" and cause much cheaper copper services, which would "dramatically slow migration to UFB (ultrafast broadband) services."

Among concerns is the potential for much lower copper network pricing to deter investment and uptake of ultra-fast broadband, using the government-subsidised fibre network being laid throughout the country.

The UCLL service lets telecommunication companies use the copper network between an exchange and an end-user's premises to offer their own voice and broadband services. UBA gives access to Chorus's electronics, software and transport over the network, meaning telcos don't have to build their own.

Chorus was spun-out from Telecom as a separately-listed company last year to free up the telecommunications company from its regulatory burden and allow the network operator to successfully win a billion dollar subsidy to build a nationwide fibre network and rural broadband system.

Some 80 percent of the network company's revenue is still derived from the ageing copper network, and is subject to the Commerce Commission's pricing review.

Gale said he didn't expect the draft UBA regime to deter unbundling of exchanges and gives enough lead-in time for firms to recover their cost of investment.

BusinessDesk.co.nz

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