STOCK EXCHANGE ANNOUNCEMENT
26 January 2017
Chorus to extend fibre to another 200,000 customers
Chorus today announced it has reached an agreement with Crown Fibre Holdings
to extend its ultra-fast broadband (UFB) rollout to a further 169 areas
extending from Taipa-Mangonui in Northland to Bluff in Southland. This will
make fibre available to an additional 200,000-plus homes and businesses
beyond the 1.1 million customers in Chorus'' existing UFB rollout areas.
Chorus CEO Mark Ratcliffe said Chorus was delighted to be working with the
Government to extend the reach of fibre broadband to so many new communities.
"Fibre is undoubtedly the future of broadband. In the five and a half years
that we''ve been building the UFB network and connecting homes and businesses
to fibre we''ve seen a huge upsurge in demand.
"We''re particularly pleased to see many of the towns and areas soon to
benefit from fibre are within the Government''s Regional Growth Programme,
helping to increase jobs, income and investment in regional New Zealand.
"We''re looking forward to working alongside local councils and lines
companies as we finalise our deployment plans and we will also endeavour to
make recent earthquake hit areas a priority".
At the end of 2016, the uptake of fibre across Chorus'' current UFB deployment
areas was at 32%, with areas completed earlier in the programme seeing uptake
surpassing 40%.
Monthly household internet data consumption has also burgeoned in the last
five years. In 2011, as the first phase of UFB was announced, the average
household used about 13 gigabytes of internet data a month. This has grown to
more than 120 gigabytes a month today with nearly half of all broadband
customers having made the move to unlimited data plans.
"Fibre provides the broadband equivalent of an autobahn right to the door of
homes and businesses, it will future-proof these communities for the
anticipated continued growth in data consumption.
"With no signs of demand waning, we''re forecasting average monthly usage of
680 gigabytes by 2020 as people access more and more online content and
switch on to activities like video streaming," said Mr Ratcliffe.
The second phase of the UFB rollout is expected to commence in July 2017 and
finish by December in 2024. A list of the Chorus towns and areas can be found
at chorus.co.nz/ufb2.
Chorus estimates the cost of the UFB2 communal network will be $370 million
to $410 million. The cost to connect each of the 203,000 potential customers
within this footprint is estimated to average $1,500 to $1,700 (in 2017
dollars and including layer 2, backbone costs for MDUs and rights of way with
10 or fewer premises).
Today''s agreement does not change Chorus'' FY17 capital expenditure guidance
or previous dividend guidance.
ENDS
For further information:
Nathan Beaumont
Media and PR Manager
Mobile: +64 (21) 243 8412
Email: Nathan.Beaumont@chorus.co.nz
Brett Jackson
Investor Relations Manager
Phone: +64 4 896 4039
Mobile: +64 (27) 488 7808
Email: brett.jackson@chorus.co.nz
Outline of UFB2 agreement key terms
The UFB2 agreement terms are materially similar to UFB1 and include:
o Pricing for services in UFB2 areas will be the same as for Chorus'' existing
UFB areas and subject to the prevailing regulatory regime from 2020. The UFB2
network includes backhaul from remote towns to UFB1 handover points.
o Until 1 January 2026, UFB2 residential customers will not be charged for
connections up to a distance of 200 metres.
o Chorus must connect services on the date agreed with RSPs or credit them a
month''s rental. Service level payments to Crown Fibre Holdings (CFH) are
triggered if less than 75% of agreed dates are met. There are a range of
other service levels that include payments to RSPs and CFH.
o Unbundling of the UFB2 network is not contractually required before 2026,
but in the event of a regulatory requirement to unbundle the UFB2 network
earlier there would be no compensation provided to Chorus.
o Chorus must complete each UFB2 area 12 months from the agreed start date,
but may start earlier provided the build takes no longer than 15 months.
Communal network must be built in rights of way with more than 10 premises
unless consent from affected persons is not granted.
o Overall, Chorus has greater control in UFB2 and the agreement is more
outcomes focused. For example, while the key network requirements are
described in the contract, CFH does not have an approval right over the
network architecture. There is a liquidated damages regime for delays, but
it is simpler than in UFB1. The risk of delays is reduced by the fact that
the schedule will be agreed upfront for the entire programme. Chorus and CFH
can agree changes to the schedule if something unexpected arises, for example
relating to Council consents or the discovery of archaeological features.
o Chorus expects to receive $291 million in CFH funding to build fibre past
the 168,240 premises in UFB2 areas. There are three different funding rates -
$1,552 per premises for 112,433 premises to be passed by 2023, $2,000 for
38,620 premises in the latter half of the rollout and $2,300 for 17,187 other
premises throughout the rollout.
o In return for the CFH funding, CFH equity and debt securities will be
issued on very similar terms to UFB1. Chorus can elect the mix of securities
to be issued (up to a maximum of $189m equity securities) but expects to
issue 65% equity securities and 35% debt securities, with equity securities
likely to be issued first.
o Dividends are payable on the equity securities proportionately:
- 18.46% from 30 June 2030
- 55.38% from 30 June 2033
- 100% from 30 June 2036
o The debt securities are to be proportionately redeemed from 2030:
- 18.46% on 30 June 2030
- 36.92% on 30 June 2033
- 44.62% on 30 June 2036
o The CFH equity securities will not have any voting rights and will rank
ahead of ordinary shares on liquidation. They may be converted to ordinary
shares in certain circumstances, and Chorus may redeem them for cash or
ordinary shares. The CFH debt securities will comprise a senior and a
subordinated portion, on a similar basis as the existing CFH debt securities
and may be accelerated in the event of a material breach by Chorus or on
insolvency or cross-default.
o While CFH equity and debt securities are outstanding, Chorus cannot pay a
dividend to ordinary shareholders without CFH consent if it does not have an
investment grade rating.
o There are no CFH warrants or uptake targets.
o In order for CFH to provide funding: Chorus must not be in breach of the
financial covenants in its banking facilities; from 2020 (or earlier if it
does not have financial covenants in its bank facilities) Chorus must not
have a sub-investment grade rating from both S&P and Moody''s (or only one
entity if that is the only rating entity) for a continuous period of four
months; and there must not be a material breach of the UFB2 agreement or
suspension of it for health and safety reasons.
o Material breach events include where Chorus fails to complete a build
milestone within nine months, where Chorus fails to meet the same CFH service
level for three consecutive months and then fails to remedy that service
level within a further three months, Chorus becoming unable to fulfil its
obligations or an insolvency type event or cross default occurs. If the
material breach relates to build delays, CFH may elect to require Chorus to
pay $50,000 liquidated damages per day for up to 180 days and if the material
breach is not remedied in that time, CFH may contract a third party to
undertake the build. There is no management step in right.
o There is a suspension right following a death or serious injury or material
breach of health and safety legislation and CFH may terminate the agreement
if Chorus has been convicted of a serious offence under the Health and Safety
at Work Act 2017.
o Chorus and CFH have also entered a conditional agreement giving Chorus the
option to bring forward part of the CFH funding if Chorus'' credit rating is
below investment grade for a period of at least four months between 1 January
2020 and 31 December 2021. The funding is available on terms similar to
those agreed with CFH in July 2014. As with the 2014 agreement, if Chorus
chooses to use the facility, Chorus would be unable to pay a dividend on its
ordinary shares before completing the UFB2 build without CFH approval, unless
Chorus normalises the CFH funding profile.
The agreement is conditional on Chorus securing tax and ratings treatment
consistent with UFB1, as well as competition law authorisations which were
provided for UFB1.
End CA:00296012 For:CNU Type:GENERAL Time:2017-01-26 08:56:43