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Chorus to appeal High Court judgment

Chorus [NZX: CNU] says it has sought leave to appeal the High Court decision that sided with the Commerce Commission over copper line pricing.

The company had sought to get the regulator's pricing determination - which it says will wipe $1 billiion off its ebitda through to 2019 - tossed out.

“We must continue to use every option available to us in order provide clarification of pricing principles and section 18/18 (2A), which is a critical part of the regulatory regime and affects both current and future industry outcomes,” said Vanessa Oakley, Chorus General Counsel this morning.

“It is important to note that seeking this further guidance does not disturb Chorus’ strong focus on the Final Pricing Principle (FPP) processes underway, which are due to be completed by the Commission by 1 December 2014.”

InternetNZ says it's disappointed that Chorus has sought leave to appeal.  CEO Jordan Carter says that the Court was unequivocal in its judgement, and was particularly strong in setting out the way section 18 of the Act operates – the part Chorus argues was misinterpreted.

“Justice Kos made it very clear that the Commission knew what it was doing, and was doing it well. For Chorus to come out now and say that not only the Commerce Commission got it wrong, but so too did the High Court is just over the top.”

Mr Carter says that Chorus should turn its attention to the FPP process so the industry can get some certainty around copper pricing.

“Companies have the right to legal action, of course; that is what the Courts are for. But the High Court has made a ruling, it is clear and it gives certainty. It’s time to move on."

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Chorus loses bid to have ComCom's copper pricing determination tossed out by High Court

UPDATED / April 8The law change allowing Telecom to carve out its Chorus [NZX: CNU] network unit to participate in the government's ultra-fast broadband scheme "was always going to drive a pricing sea-change" for the company's regulated services, according to a High Court judge.

LATEST: High Court verdict a legal blow for Chorus - but also a major political blow

Justice Stephen Kos today turned down an appeal by Chorus to have the regulator's initial pricing principle (IPP) set aside, and for the commission to redo the process after its first decision ordered Chorus to slash prices for access to its copper lines.

The judge said the commission did what Parliament prescribed in finding an IPP price based on international benchmarks relatively quickly and cheaply, and that the appropriate response by unhappy parties was to request a more fulsome final pricing principle under the legislation.

"The IPP outcome was not evidently irrational, however unpalatable it may have become to Chorus," the judge said.

Justice Kos said the commission was aware Chorus wanted a higher price to be determined under the IPP, and the draft price it proposed "involved a very substantial reduction" from the $21.46 price under the old regime.

"As to regulatory shock, the commission was plainly aware of the submission," the judgment said. "But the new statutory regime was always going to drive a pricing sea-change."

Chorus appealed the commission's final determination 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 accounting for $23.52.

At last month's hearing, Chorus claimed the regulator erred in law when setting the price Chorus can charge for access to its UBA services in that it didn't have any evidential basis to narrow its inquiry and ignored a section of the legislation aiming to support the government's goal of building a nationwide fibre network.

The commission rejected the claim, arguing that the change in regulation, rather than the decision, had shocked the market.

Justice Kos today said the regulator's benchmark range of prices followed "a process probably more extensive than Parliament had in mind" and wasn't limited when the commission reached its determination. It also exercised permissible judgement when applying a section of the law designed to minimise the risk regulation would have on investment and innovation in the sector, he said.

"Despite the combined intelligence and force with which Chorus's submissions were delivered, I am left unpersuaded that the commission erred in law in setting the IPP price for UBA," the judge said.

(BusinessDesk)


EARLIER / April 8Chorus [NZX: CNU the telecommunications network operator, has lost a bid to dismiss a Commerce Commission determination setting the price for services on its copper lines.

The High Court turned down the Wellington-based company's attempt to have the regulator's initial pricing principle set aside, and for the commission to redo the process after its first decision ordered Chorus to slash prices for access to its copper lines. The judgment leaves the status quo in place, which means the regulator will have to complete a more fulsome final pricing principle by Dec. 1, Chorus said.

"It was important that a regulatory decision of such significance for investment in communications infrastructure enabling better broadband for New Zealand was reviewed by the court," Chorus general counsel Vanessa Oakley said. "Our focus continues on the parallel commission processes that use cost modelling for the first time to review the benchmarked prices of regulated services."

At last month's hearing, Chorus claimed the regulator erred in law when setting the price Chorus can charge for access to its unbundled bitstream access services in that it didn't have any evidential basis to narrow its inquiry and ignored a section of the legislation aiming to support the government's goal of building a nationwide fibre network.

The commission rejected the claim, arguing that the change in regulation, rather than the decision, had shocked the market.

The shares rose 0.6 percent to $1.79 yesterday, and have climbed 24 percent this year, after being punished last year at the height of the regulatory uncertainty.

(BusinessDesk)

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RAW DATA: Judgment (PDF)464.69 KB

Comments and questions
5

Good. The Com Com needs to be pulled into line and get a commercial grip on reality. Com Com expects the investors like me in CH to pour hundreds of millions into building UFB for NO return on their investment.
And those in Kiwi Saver should also get a grip and understand they will be indirect investors in CH thru their fund manager holding CH shares.
Again that's the reality of life NOT the Alice in Wonderland world the Com Com lives in.

Sorry to disagree but so far the Commerce Commission has acted appropriately in this matter and the High Court judge agreed with its approach.

Section 18 of the Act is not difficult to read or interpret, but the suggestion that it should override the entire rest of the Act simply doesn't wash. There's nothing in it to suggest it would require the Commerce Commission to seek input from the industry, benchmark against other jurisdictions and then completely ignore the results.

Chorus is a long-term, low risk, steady-as-she-goes stock, not a high risk/high return stock.

The reality is the company needs to realise it cannot pay out huge dividends and invest in the future at the same time. It's one or the other and since the public are paying the company nearly $1bn to build this network, and since Chorus cheerfully took the money in the first place, I suggest it get on and do what it's been contracted to do.

Paul Brislen
TUANZ

Paul,

I have long given up on your ability to read a company's financial statements (or understand the market, how did the insider trading investigation go into Chorus BTW???) But for you others reading this who might think TUANZ one (soon to be None) employee and CEOO (Chief Executive Officer of One) is even vaguely correct, here is the raw truth. So NBR please make THIS your featured comment as Paul's is blatantly wrong and anyone with a calculator and basic addition skills can see that.

In FY13 Chrous paid out $95m in Dividends of which $12m was reinvested. So a net cash payout of $83m. Over the same period they spent $681m on capital expenditure, 8.2x or 820% more than they spent on paying dividends!

Furthermore the part of the Capex they spent on building the new Fibre network was $579m or 85% of their total capex. Comparing this figure with dividends paid shows you that they spent 6.98x or 698% more on investing in the Fibre network than paying out dividends.

Or looking at it another way, for every $1 they spent on the Fibre network, they paid out only $0.143 to shareholders as dividends.

I would hardly call that "HUGE DIVIDENDS"!!! Yes Paul Chorus should be a low risk steady as she goes stock - and at $3.40 it was before the ComCom came out with its farcical initial draft IPP UBA decision followed up by the final IPP (due to flawed legislation and the ComCom's horrendous interpretation of it).

Yes it is quite possible the UBA price under FPP could stay quite a bit lower than the $21 - But its not about that, is it Paul as you should well know... It's the UCLL decision that is supposed to encompass the entire value of the network. And at the $23.52 for UCLL and the related flow on to the UCLFS price was way too low.

Why do you think you and your access seeking mates and consumers are so scared about backdating? Because if the FPP comes out and the price for UCLL (and hence UCLFS) should have been $35 say, then as per the Court of Appeal ruling 2006 ComCom (and others) v Telecom, it should be backdated. So 24 months of $10 a month x 1.6m lines hmmm thats a fair chunk of change

So the UBA is a nice side issue but its the UCLL (and hence UCLFS) that counts. Watch this space....

Hate to disagree lms but you should direct your ire towards the complacent management and disengaged board of the company you invested in.

Though Chorus, as a monopolistic infrastructure of national importance, is regulated and controlled by the govt and comcom, but the investors should have a reasonable (not high, not low) ROI consistently even during the build up period. Once the infrastructure is completed govt and comcom will still have the options to regulate and control to reduce future ROI. I find it difficult to understand why do so called expert commentators talk about huge profit over a long period. Techies should talk about technology, not business. Chorus Board and top leadership have failed to manage the company. Either shareholder should act to replace them or govt as a key contributor should take action to appoint administrator and bring certainty.
Why do Ratcliffe et al are unnecessarily spending money for a dead case? Chorus legal team should have understood outcome of the high court proceedings and withdraw earlier as comcom was agreeable to conduct FPP by Nov 30, 2014.