Chorus warns of more earnings pain from latest review on copper lines
"Nobody should be surprised that the regulator thinks Chorus is charging too much for these services"Featured comment
Chorus faces another hit to its earnings as the regulator looks into the price of another component in the embattled telecommunications network operator's copper lines.
The Commerce Commission has started a review for the price list for Chorus's unbundled copper low frequency service (UCLFS), which lets telecommunications companies provide voice services using the low frequency band on the copper local loop network.
The Telecommunications Act requires the UCLFS price to be the same as the unbundled copper local loop (UCLL) price, and the regulator is of the view the change should be backdated to Dec. 3 last year, when the final UCLL price was set. UCLL lets telecommunications companies use the copper network between an exchange and an end-customer's premises to offer their own voice and broadband services.
Chorus estimates the change will trim between $5 million to $6 million from its annual earnings before interest, tax, depreciation and amortisation. In all, Chorus has warned its annual EBITDA may be cut by up to $148 million from a raft of price regulations to its copper network, about a quarter of its $654 million annual earnings in the 2013 financial year.
"This is yet another example of the regulatory framework delivering prices that are disconnected from real costs," Chorus chief executive Mark Ratcliffe said in a statement. "These costs have not been accounted for in the proposed charges and the draft prices do not reflect those real costs."
Shares in Chorus gained 0.4 percent to $1.32 today, having plunged 61 percent since the regulator flagged a steep cut to the regulated prices of its unbundled bitstream access service on the copper lines.
The commission set the UCLFS charges in November 2011, the month Chorus was officially carved out of Telecom, saying at the time it would update the connection and transfer charges for the service once the UCLL pricing review was complete.
In the UCLL determination last year, the regulator affirmed its view that a single price for the services was appropriate.
Separately, Chorus chair Sue Sheldon wrote to shareholders updating them about the regulatory uncertainty hanging over the company, saying it couldn't finalise its medium term strategy while in negotiations with Crown Fibre Holdings, with whom it holds the contract for fibre network build.
"At this stage it is likely Chorus will need to cut all discretionary activity, including growth-related capital investment, re-price most of its commercial services, and generally manage for cash until the commission's final price review outcomes are resolved," Sheldon said. "We are also continuing to assess capital management options that might be appropriate."