New Zealand’s Chorus hits out at “backward” broadband regulation

New Zealand’s Chorus has issued a stark warning that new pricing regulation could slash NZD180 million ($148 million) off its annual earnings in future and hinder the take-up of new fibre-based broadband services.

The operator, which was carved out of Telecom Corp of New Zealand (Wellington, New Zealand) last December, owns most of New Zealand’s copper-line networks and provides wholesale fixed-line and broadband services over this infrastructure.

New Zealand’s Chorus has issued a stark warning that new pricing regulation could slash NZD180 million ($148 million) off its annual earnings in future and hinder the take-up of new fibre-based broadband services.

The operator, which was carved out of Telecom Corp of New Zealand (Wellington, New Zealand) last December, owns most of New Zealand’s copper-line networks and provides wholesale fixed-line and broadband services over this infrastructure.

It is, however, subject to heavy regulation and has complained vehemently about new rules introduced by the New Zealand Commerce Commission.

Chorus (Wellington, New Zealand) has been ordered immediately to cut the prices at which it rents unbundled copper local loops to rivals and says this will reduce its earnings before interest, tax, depreciation and amortisation by NZD20 million a year.

For the seven months ending in June, it reported EBITDA of NZD399 million.

A proposal to reduce the price of unbundled bitstream access from December 1 2014 would have an even greater impact, reducing annual EBITDA by NZD150–160 million a year, according to the operator’s initial assessment.

Chorus says the collective impact of the two changes would force it to rethink its business model, capital structure and approach to dividends.

It adds that pricing reductions do not make sense to investors when taxpayers are shouldering the costs of a government-backed rollout of fibre networks.

Chorus is in the vanguard of the fibre initiative, building networks that are expected to reach 830,000 premises by the end of 2019.

“Today’s decisions are a significant step backward,” said Mark Ratcliffe, the chief executive of Chorus, in a statement. “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.”

Ratcliffe says he plans to speak with authorities about the “apparent policy disconnect” and the role of Chorus in New Zealand’s superfast broadband scheme.