3 December 2012
Commission decisions potentially undermine UFB
The Commission''s final UCLL and draft UBA decisions were released this
The Commission''s final decision on UCLL sets a new monthly rental price for
UCLL in urban areas of $19.08 and non-urban areas of $35.20, which will apply
from today. A nationally averaged UCLL monthly rental price of $23.52 will
apply from December 2014. This will impact around 100,000 UCLL lines, based
on June 2012 volumes. The Commission has also adjusted some UCLL connection
The new nationally averaged UCLL price of $23.52 will immediately flow
through to the UCLFS price. This will impact around 1.6 million lines, based
on June 2012 volumes. UCLFS connection charges have not been adjusted as
part of the UCLL decision.
The Commission''s draft decision on UBA proposes a draft monthly rental price
of $8.93, or $32.45 when combined with the UCLL price. This would impact
around 1 million lines, based on June 2012 volumes. It is proposed that this
pricing will take effect from 1 December 2014.
An initial analysis suggests:
i) the annualised EBITDA impact of the final UCLL and UCLFS decision
(including the changes in UCLL connection charges) is a reduction of around
$20m (based on connection numbers as at 30 June 2012). As the decision
applies from 3 December 2012, for the year ended 30 June 2013 the EBITDA
impact is expected to be approximately 7/12ths of this estimate (i.e. a $11m
- $12m reduction); and
ii) the annualised EBITDA impact of the UBA monthly rental prices (if the
draft UBA decision were to become final, based on connection numbers as at 30
June 2012) could reduce annual EBITDA by a further $150-160 million from
Chorus has very serious concerns about the potential impact of these
While noting that the UBA decision is a draft, and there is a process to run,
management expects that the collective impact of these two changes (if the
draft UBA decision were to become final) could require Chorus to
fundamentally rethink its business model, capital structure and approach to
The Commission''s decisions highlight the urgent need for a coherent and
sustainable policy environment if New Zealand is to realise the Government''s
UFB vision and encourage investment domestically and internationally in New
Zealand infrastructure. We note that the Commission''s draft UBA decision
referenced the limited data set upon which its analysis was based and
implications for Chorus'' revenue.
The world is watching to see if New Zealand''s world-leading UFB policy and
the demerger of Chorus as a wholesale-only company will be a success story.
Investors do not understand the rationale for reducing copper-based prices at
the same time that taxpayers are supporting a Government-backed generational
change to fibre. This will significantly reduce fibre uptake.
Chorus CEO Mark Ratcliffe said "at a time when New Zealand needs economic
efficiency, productivity and social progress enabled by public private
partnerships, today''s decisions are a significant step backward. The whole
industry needs to be aligned to a transition to fibre if New Zealand is to
get better broadband and new innovative services and applications. Shifting
the relativity of copper and fibre pricing will discourage that transition.
I have publicly expressed concern about this on a number of occasions,
including the May investor briefing, our annual results and most recently our
"We note the Minister''s comments and we will be talking to the Crown about
the apparent policy disconnect, and Chorus'' role in the UFB programme. At
the very least, we believe that the Government should immediately look to
bring forward the regulatory review already required by legislation in 2016,
in order to bring about a sustainable framework next year that will support
the UFB vision."
The final UBA decision is not expected until June 2013.
For further information:
Head of Communications & Brand
Mobile: +64 (27) 452 6231
Investor Relations Manager
Mobile: +64 (27) 488 7808
End CA:00230588 For:CNU Type:GENERAL Time:2012-12-03 13:42:14