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Chorus hopes for NZ Government intervention following Commerce Commission pricing benchmark

Nermin Bajric | Nov. 6, 2013
Expects benchmark to have $142m annualised EBITDA impact

Broadband infrastructure company, Chorus, claims the Commerce Commission's final decision regarding the pricing for its copper broadband service will render it unable to borrow the sum it requires to make up to a $3 billion investment in ultra-fast broadband (UFB).

Earlier today, the Commission listed its final benchmarked UBA price at $10.92, which is around a 50 per cent reduction from the current $21.46 monthly charge. The $44.98 per month Chorus currently charges retail service providers for a copper line and broadband service would drop to $34.44.

Under current legislation, the pricing will apply from December 1, 2014.

Chorus expects the benchmark to have around a $142 million annualised earnings before interest, taxes, depreciation, and amortisation (EBITDA) impact based on connection numbers at September 30 this year. This adds to the approximate annual $20m EBITDA reduction from the December 20 UCLL benchmark decision.

Additionally, the UBA price announced today would imply around a $1bn funding shortfall by 2020.

"The ability to finance the business cases of both Chorus and other LFCs, which were agreed when the UFB contracted were awarded, is missing from today's decision," Chorus chief executive officer (CEO), Mark Ratcliffe, said.

"This decision also undermines the intention to incentivise an efficient transition onto that network by attractive entry-level fibre pricing. There is no guarantee this proposed reduction in wholesale prices would be passed through to customers."

Following today's decision, with absent intervention by the Government to realign the policy settings to support the investment in and transition to fibre, Chorus claims it will be forced to:

  • discuss the decision with existing lenders and rating agencies which analyst its credit worthiness;
  • notify bank lenders that the absence of anticipated Government intervention in Chorus' view this price change is likely to have a material adverse effect on December 1, 2014, under the terms of its borrowing arrangement;
  • evaluate its business model and nature of existing commitments as a result of reduced operating cash flows, reduced borrowing capacity and increased cost of capital;
  • discuss with the Crown whether Chorus is still a credible UFB partner;
  • review its current capital management settings;
  • conduct a detailed evaluation of other options to minimise financial downside.

"We are intensely disappointed with today's decision," Ratcliffe said. "Chorus is ahead in its UFB build programme, is leading an industry transition to fibre and making other investment to improve broadband in NZ. But unless the Government intervenes, it is likely that the benefits for NZ will be significantly compromised."


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