Tuesday 15th December 2015 |
Text too small? |
The Commerce Commission's verdict to let Chorus charge customers more to access its copper lines network has delivered a $240 million bump to the company's value, driving the shares to a record.
The regulator today released its final determination for what Chorus can charge on its regulated copper lines after a more rigorous process to find the price than the initial pricing principle review, which relied on international benchmarks. The price Chorus's customers will pay for wholesale access broadband service has been set at an average $41.69 a month over the next five years, up from the $38.43 price signalled in its previous determination and the $38.39 level set in the initial round of price-setting, which came into effect on Dec. 1 last year. However, Chorus isn't allowed to backdate the charges to last year, a decision that the regulator's commissioners were divided on.
Chorus shares jumped as high as $3.75, and were recently up 19 percent to $3.70, valuing the Wellington-based company at $1.47 billion, compared to the $1.23 billion market capitalisation before the decision was released. The network operator anticipates 2016 earnings before interest, tax, depreciation and amortisation of between $580 million and $600 million as a result of the decision, upgrading guidance from a previous forecast for a "modest decline" from the $546 million in 2015.
"We have consistently said that the previous draft prices significantly underestimated the true value of Chorus’s network, so it is pleasing that the commission has taken on board the industry’s repeated requests and used some of the real world costs of building a network," chief executive Mark Ratcliffe said in a statement. "This lengthy, volatile process highlights the importance of the post-2020 regulatory review to ensure a more stable and predictable framework to deliver better broadband for New Zealand."
Chorus has been critical of the regulatory process, claiming the original decision would force it to cut prices too steeply and put its investment in building a nationwide fibre network at risk. It's more optimistic the government will alter the regulatory regime for its fibre services when it completes a review of law overseeing the industry, set for a 2020 start.
Telecommunications commissioner Stephen Gale told a briefing in Wellington the increase in price was largely due to the regulator missing out a key trenching component in its July draft determination, something the industry rapidly pointed out during the final round of submissions.
"It's unfortunate that the error wasn't picked up in July," Gale said. "The parties that have been involved have had now two complete shots to make suggestions as to where the model needs to be adjusted, so I think that gives you confidence that the analysis has converged, and in this final step, as you'd expect, the model has been subjected to a very close scrutiny."
As Chorus's biggest customer, Spark New Zealand will bear the brunt of the charges, and it said customers will lose out as a result of the decision. The Auckland-based company expects the higher copper wholesale price will increase its costs by $21 million in 2016 and $36 million on an annualised basis, while the unbundled bitstream access price will rise by $1 million in 2016 and $2 million on an annual basis.
"We are now also forced to increase our retail voice and broadband pricing to take into account the significantly increased costs now faced from higher regulated Chorus line charges," Spark chief executive Simon Moutter said in a statement. "While the Commerce Commission decision is effective from tomorrow, it will take months before the higher charges flow through completely into pricing for our customers."
Spark shares fell 0.5 percent to $3.14.
Telecommunications commissioner Gale said he expected retail prices would rise in line with the wholesale price increase.
Vodafone New Zealand, Chorus's second-biggest customer, said it was disappointed with the decision, and would probably pass that on to the consumer.
Industry lobby Internet New Zealand said the "extreme nature" of the price hikes might lead to a judicial review of the decision.
When asked about whether he was confident the decision would avoid a legal challenge, Gale said the majority view had "taken the relevant considerations into account and we're comfortable with the position."
BusinessDesk.co.nz
No comments yet
Second St John withdrawal of labour takes effect tomorrow with further strikes likely
Sanford Appoints Independent Director
CRP ADVISES CLOSURE OF SHARE OFFER TO EXISTING INVESTOR
Devon Funds Morning Note - 14 August 2024
OCR 5.25% - Monetary restraint tempered as inflation converges on target
Consumers still need due diligence as new deposit takers emerge.
Woolworths strike: staff asked to dress up in Disney costumes for a week on their own dollar
Turners Invests in Quashed Online Insurance Platform
PGW Reports on Challenging Year
Arvida Announces Executive Team Changes