Chorus shares plunge to new low as Govt isolated on copper-pricing

Friday 29th November 2013 2 Comments

Shares in Chorus dropped to a new low after the government found itself unable to use legislative approaches to intervene in the price the telecommunications network operator charges for access to its copper lines.

The stock fell as low $1.47, recently trading at $1.53 on the NZX this morning, down 14 percent from yesterday. That values Chorus at about $606 million, about $100 million less than yesterday, and almost half the $1.13 billion when it was spun out of Telecom in late 2011.

The plunge comes after the National-led administration's support partners came out yesterday in a seemingly orchestrated manner saying they would oppose legislative action in setting the price Chorus charges on its copper network, and limiting the government's options.

James Lindsay, senior portfolio manager at Tyndall Investment Management, said the removal of legislation options means investors have to take the Commerce Commission's price determination as gospel, leaving Chorus unlikely to be able to pay dividends, and probably in need of raising fresh capital.

"You've got to pity them now - they were doing the hard yards in actually making a good stock of building the UFB (ultrafast broadband network) and now they've sort of been slightly abandoned," Lindsay said.

The government has hired Ernst & Young Australia to run the ruler over Chorus's books to see if it has the financial capability to deal with a Commerce Commission imposed cut to services on the copper lines.

Communications Minister Amy Adams is mulling how to respond to Telecommunications Commissioner Stephen Gale's planned 23 percent price cut for access to Chorus's regulated copper lines, which the network company says will force an overhaul of its capital structure and may threaten the taxpayer subsidised build of national fibre cable infrastructure.

Adams said yesterday the stance by other political parties wasn't unexpected, and that the government has been considering a number of non-legislative measures for some time.

She told Radio New Zealand's Checkpoint programme legislating would have been the government's least preferred option, and that the government is waiting to see EY's analysis to determine what slack Chorus can pick-up, before deciding what steps to take next.

Other options open to the government are changing the terms of Chorus's contract to build the UFB network, which could include shifting the milestones the company would have to meet.

Chorus chief executive Mark Ratcliffe told RNZ's Morning Report programme there were "many, many options" still available, including the ability to vary the company's contract with the Crown for the UFB rollout.

The UFB project was a public-private partnership, making the Crown a "critical" element in whatever approach was determined, said Ratcliffe.

BusinessDesk.co.nz

Comments from our readers

On 29 November 2013 at 1:04 pm dave said:

now the commerce commission and the other parties run the country. Who would vote for labour or the greens, only idiots is the only answer i can come up with

On 29 November 2013 at 5:35 pm Allan said:

The government tells us we must invest in business that will grow the economy not nasty property after looking at what has happened to chorus and all the listed electricity companies who would go near the share market meanwhile rentals in the right areas go up by 8% a year on average plus give over 5% along the way also if the loony greens get anywhere near the seats of power watch out all bank z energy telecom and so on shareholders plus of course nasty farmers et al if I was younger I would be off to Aussie no question