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Chorus shares fall as UFB costs grow, in talks with Crown Fibre Holdings

Shares in Chorus dropped 2 percent after the telecommunications network operator spun out of Telecom signalled the cost of building a nationwide ultrafast broadband network has increased by some $300 million.

The Wellington-based company expects the total UFB build to be between $1.7 billion and $1.9 billion, from a previous range of $1.4 billion and $1.6 billion. It flagged capital expenditure of $640 million to $690 million this financial year from previous guidance of $560 million to $610 million. The shares fell 6 cents to $2.98.

Chief executive Mark Ratcliffe told an investors' briefing the company is focused on bringing down the building costs, which have got away on the company in about 10 percent of the network's areas. Chorus has had early talks with Crown Fibre Holdings about pushing out some of its year three requirements into year four.

"It's clearly going to be expensive in year three to four if we have to meet those objectives," he says. He is confident with the new UFB forecast, which is based on 18 months of actual building experience.

"We know what's going to be expensive if we build them in the same way next year." 

Chorus says the rate of its UFB rollout has been consistent with expectations, with building work completed for 88,590 premises as at December 31 and it is on target to pass 149,000 premises by the end of June this year.

The network company is looking at alternative deployment methods to cut costs and Mr Ratcliffe told investors between 10 percent and 20 percent of the UFB build will be on overhead lines.

The company today reported earnings before interest, tax, depreciation and amortisation of $331 million in the six months ended December 31 were in line with the $332.5 million forecast by Forsyth Barr analyst Jeremy Simpson.

Net profit was $84 million, or 22 cents per share, on sales of $525 million, compared to Simpson's expectations of $80.8 million and $516 million respectively.

The results do not have an easily comparable period, as Chorus was still under the Telecom umbrella until November 2011.

The board declared an interim dividend of 10 cents per share payable on April 12.

Chorus has been caught in a regulatory wrangle in recent months after Telecommunications Commissioner Stephen Gale's draft decision to impose regulated price of unbundled bitstream access services of the ageing copper lines surprised the government and company alike.

The potential price cut has since been put on ice by Communications Minister Amy Adams, who has brought forward a review of the law governing the sector.

The government has provided Chorus with a $929 million subsidy to build the fibre network, and there was an implicit expectation the regulator would go easy on the network operator on its regulated business.

Ms Adams' decision gave Chorus enough certainty to shore up its dividend guidance, and it expected to pay 25.5 cents per share in 2014, provided all things remain the same. The board will deliver longer-term guidance once the government's review has been completed.

Chorus increased its number of total fixed line connections to 1.79 million as at December 31 from 1.78 million six months earlier.

Baseband copper connections fell to 1.56 million from 1.59 million, while unbundled copper local loop connections rose to 109,000 from 97,000. Fibre connections rose to 15,000 from 10,000 and UBA advanced to 72,000 from 50,000.

(BusinessDesk)

Comments and questions
8

For everyone else in the real world when you misprice a deal you wear the cost.

So hopefully the Government tells Chorus to get stuffed and wear the cost. Why should the taxpayer pay more for what the government contracted for?

Chorus claim it costs $2500 per home pass. How come in the rest of the world it is more like $750 - $1000. Looking at the fibre / copper drop cable they have to install it seems CFH is also subsidising building Chorus owned copper DSL network at the same time.

After John Key's rejection of the Commerce Commission's implementation of his own government's cost-plus policy, and the ComCom's revelation that Chorus is extorting nigh on double the price for its copper lines, the consumer should be well aware that they are subsidising Chorus' shareholders and their largely publicly funded infrastructure at the behest of the prime minister.

Possibly because NZ houses are typically much further apart than in other countries, and we have very few high-rise apartment blocks that are very cheap to connect up en mass to bring the average cost down.

The cost models can be taken from many similar countries incl S.A & UK & the methodology they are using is from last decade in typical Telecom closed shop style. They bid for the project without even a proper MDU solution and they just continue to pour all our money back to Sweden. Huawei is no better installing cheap nasty components that is going to leave UFF & Enable with a lemon.

In Auckland, they have being laying fibre, first digging up the footpaths, etc, then filling them in & sealing them, & then digging them up again, etc. Must be some waste there they can cut out.

And this is where the govt's decision to get cosy with Chorus and give them a loan rather than demanding ownership like they did with the other fibre companies is going to go wrong.

This govt will be long remembered for its corruption in so many forms.

The Government won't give them more money, it doesn't have any. So they will ask for the regulation to be further set in their favour so they can get the money off the 98% of people who aren't using fibre. Maybe they could throw in a convention centre as well?