Broadband customers reap benefits ahead of regulated copper prices, Spark says

Spark head of home mobile and business Chris Quin
Spark 12-month price history (NZX.com)

New Zealand broadband users are already reaping the benefits of cheaper internet access with retail service providers slashing prices in preparation for cheaper regulated prices over the copper network, Spark New Zealand [NZX: SPK] says.

The telecommunications company formerly known as Telecom Corp has been forgoing margin as it looks to grab broadband market share, with its annual revenue down 9.8 percent at $284 million in the year ended June 30 from two years ago, even as connections are up 8.4 percent to 648,000 over the same period.

Head of Spark home mobile and business, formerly Telecom retail, Chris Quin told an analysts' briefing the market is extremely competitive, and any reductions in regulated wholesale prices on Chorus's copper network have already been passed on to customers in anticipation of the cut.

"The market is very competitive, broadband in particular, and has been for the last couple of years," Quin said. "What's happened with the unlimited plans and new services being available, people are paying $75 (a month) and they would have been $105 over two years ago."

Chorus [NZX: CNU], which counts Spark as its biggest customer, is fighting a Commerce Commission decision in November last year setting the unbundled bitstream access monthly price at $34.44 per line, up from the $32.35 price initially mulled in its draft decision, with the additional UBA component accounting for $10.92 and the unbundled copper local loop for $23.52.

The network operator, which was carved out of Spark in 2011, has warned it will lose about a quarter of its revenue if the price cuts go through as planned, and has asked the regulator to undertake a more fulsome review, known as a final pricing principle.

Chorus was the target of consumer and telecommunications lobby groups last year, which successfully closed off the government's ability to legislate to over-rule the regulator's decision. The lobbyists claimed end-users would be better off with the cut to the regulated price.

Spark today announced a near doubling of annual net profit to $460 million in the year ended June 30 as it booked a gain from the sale of its Australian AAPT unit, and as restructuring costs from a year earlier washed through. Earnings before interest, tax, depreciation and amortisation gained 7.1 percent to $936 million and revenue slipped 2.6 percent to $3.64 billion, largely in line with a forecast from Forsyth Barr.

The telecommunications company forecasts low single digit growth in adjusted Ebitda for the 2015 year, even as revenue is forecast to decline by a low single digit. That forecast assumes Chorus’s regulated price on the fixed copper line network is in line with the Commerce Commission’s disputed decision, and excludes rebranding costs.

Quin told the briefing there was no disincentive to migrate customers to fibre if the cut to the cost of copper-based services is upheld, with both types of customers offering Spark opportunities.

Chief executive Simon Moutter said he didn't think Spark would need to use Chorus's proposed Boost variant services, which the network company claims would increase the reliability of high-definition video, ahead of its planned launch of internet-TV service, Lightbox.

"We've just been beta-testing Lightbox at the moment, and we're not having any trouble getting HD through the current network," he said.

Shares of Spark fell 0.3 percent to $2.90, and were up 26 percent this year. Chorus shares fell 0.6 percent to $1.74, having gained 22 percent this year after being punished in 2013.(BusinessDesk)

 

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