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EY report shows no need for copper tax - Coalition

Today’s EY Australia report vindicates the Coalition for Fair Internet Pricing’s view that neither a copper tax nor a taxpayer bailout is necessary to resolve the ultra-fast broadband (UFB) issue.

“This report is good news,” a spokesman for the coalition, Paul Brislen, also chief executive of the Telecommunications Users Association of New Zealand (TUANZ), said today.

“It proves that the government’s flagship UFB initiative can be built on time and within budget with a straightforward capital raising – and without a copper tax, barmy ideas like slowing broadband speeds to dial up, or any other old-fashioned state interventions or taxpayer bailouts.

“The report indicates that a capital raising by Chorus Ltd [NZX: CNU] of around $500 million would solve all alleged problems with building the UFB after new fair prices for copper broadband and voice services come into force on 1 December 2014.

“Ms Adams is to be commended for commissioning this report and releasing it with plenty of time before the NZX and ASX open on Monday.

“It is the first solid, independent information on Chorus’s financial situation to be made available since the Commerce Commission announced last December the new fair prices it had determined under Steven Joyce’s Telecommunications Amendment Act 2011.”

Mr Brislen said the coalition would accept for the time being Chorus’s claims that the new fair copper prices would reduce its monopoly revenue by $1.07 billion through to 2020, although it remained sceptical the impact was so high.

He noted that Prime Minister John Key had previously rubbished early estimates the impact could be as high as $600 million and economists Covec had calculated the value of the copper tax to be no more than $449 million between 1 January 2015 and 31 December 2019.

EY Australia makes clear in its report it simply accepted Chorus’s claims of a $1.07 billion funding gap.

“The coalition will be studying these numbers more carefully in the days ahead, but even if the shortfall is as much as Chorus now claims, EY Australia says that much of it can be addressed through changes to dividend policies and debt headroom,” he said.

“Our initial view is that were Chorus to raise around $500 million in new equity, it could fill its alleged funding gap without recourse to the more barmy ideas to enhance revenue, such as reducing broadband speeds to that of the old dial-up services.

“Especially in the context of the booming New Zealand economy next year, raising $500 million in new equity for what is a growth stock is undoubtedly doable.”

Mr Brislen said the report not only vindicated the coalition’s arguments that a copper tax was unnecessary but also Mr Joyce’s landmark Telecommunications Amendment Act 2011, the Commerce Commission’s implementation of that Act and Ms Adams’ decision to commission EY Australia to review Chorus.

“The government has no stronger supporter of its UFB initiative than the Coalition for Fair Internet Pricing,” Mr Brislen said.

“We look forward to working with the government to play whatever constructive role we can in fast-tracking both the building and take up of the new UFB.”

Paul Brislen is CEO of the Telecommunications Users Association of NZ

Comments and questions
46

Great, thanks very much for the misleading information. Chorus is only worth of about $500 million, and suggestion like issuing another 500 million equity (100% of current company value) seems non-sense.

Why don't they suggest to issue $1billion for the fibre network in the new company? Chorus shouldn't undertake 500 million equity issue option.

Paul,

As a former editor of a computer magazine, former head corporate spokesperson for 100% foreign owned Vodafone who was all in favour (win for all wasn't it you said in 2007?) when the Commerce commission got ignored (twice) by the government in 2006 regarding Mobile Termination Rates, and now public lobbyist and only employee of TUANZ, the ISP lobby group, you are in no position to comment on capital markets, dividend flows etc. What experience do you have in financial markets and how they work to justify your claims?

FYI there is a little thing that investors require when commiting new capital and that is called "Return on Investment" (ROI) and/or Cost of Capital. The simple fact is that under the current Commerce Commission pricing structure, Chorus does not meet its Cost of Capital. So an investor would be mad to commit ANY new equity into a business where it will not meet cost of capital.

So your claim of "in context of the booming New Zealand economy next year, raising $500 million in new equity for what is a growth stock is undoubtedly doable" is naive at best, incredibly biased at worst.

What IS interesting from your comments is when you say:

"Our initial view is that were Chorus to raise around $500 million in new equity, it could fill its alleged funding gap without recourse to the more barmy ideas to enhance revenue, such as reducing broadband speeds to that of the old dial-up services"

The fact you have specifically mentioned this tells me that you and the ISPs (who no doubt pay THEIR shareholders dividends) you represent are EXTREMELY worried about Chorus' regulatory approved ability as noted in:

"The Standard Terms for Chorus Unbundled Bitstream Access Service, Schedule 1, Page 5 - The Basic UBA Service will Achieve : 99.9% probability of providing to any provisioned End User a minimum uplink and downlink average throughput of 32KBPS during any 15 minute period on demand"

So as confirmed in law by the high and mightly Commerce Commission, ie they who CANNOT be legislated over, Chorus only has to provide 32kbps.

So to get the extra $500m, why doesn't Chorus simply say on the price change in November next year to $10.92 "Ok ISPs that gets you 32kbps (as legally required), if you want faster speeds you'll have to pay for them...hmmmm $10 extra sounds fair" and lo and behold we are back up to the $21-$22 mark before the Commerce Commission's ridiculous IPP price was released (based on Sweden where 60%+ of the population live in apartments, where as 87% of NZers live in individual dwellings.

Then when the FPP is finally released it will hopefully sort out this mess of vested interests dressed up as public good once and for all.

First, TUANZ doesn't represent ISPs or any other telco. We represent end users, customers of the telcos.

Second, you forget that Chorus is a monopoly and as such is fully regulated.

Where the Commission has not introduced regulation is in areas where Chorus is playing well with others. If that were to change then the Commission would expect to be involved.

Third, the UBA speeds listed are minimums not maximum speeds. If Chorus begins to treat them as such we would expect the Commission to involve itself, from both a Telco Act point of view but also a Commerce Act position.

Fourth, if Chorus were to rate limit copper customers in the way you suggest I would expect Telecom to unbundle on a massive scale. It couldn't afford not to compete with those unbundled operators (Vodafone, Orcon and CallPlus) with an inferior product.

If Telecom unbundled then Chorus really will have a revenue crisis on its hands.

Currently the only problem Chorus faces is of it's own making. It ignored the risk if regulation even though it was given three years to prepare for it. It gives a huge percentage of its revenue away at a time when it should be investing heavily in its future and it continues to treat it's customers as if they were hostages. We are not, we are the people who pay for network operators to continue to operate.

Anyone who expected a monopoly rent driven company to continue to pay monopoly rent rates of return didn't do their homework. The rest of the industry expected it. The minister expected it. The ministry expected it. Why else was Chorus given three years in which to prepare?

That it didn't is not the fault of the Conmerce Commission which is simply doing it's job.

Paul in your riposte you have failed to address the critiques of your suggested solution, the $500m capital raising. Is this evidence that you have no support for your position and that you have made a public statement on a topic completely outside your area of expertise?
Thanks
John

John, if you look at Lance Wigg's piece today, you'll see a much more detailed view of the EY report. He goes into a great deal of detail about Chorus's dividend policy and debt raising capability.

Telecoms did not unbundle when the price is $45, why would they unbundle now or anytime when the price is below $45. Also Telecom don't have to and dont want to let other company to use its cable, it is just does not make more money for Telcome shareholders, otherwise they would did it already. I don't see why Chorus could not just charge a higher price for a better service than what Com Com is required, com com only regulate basic service and for advance services then it is up to the company to set the price. Imaging if some company have a technology that can transfer 100GB/s now, I'm sure it can charge whatever it pleases. Yeah right Paul, when Vodafone admitted to indirectly paying for lobbying already, it might not be TUANZ, but there is a group that yells for Vodafone and they stand to gain the most from this so called ”copper tax". Well I could call it my student loan repaymeny tax, kiwi saver tax, cooperate rape, and killing the quite one campaign for taking well deserved money from Chorus and putting the whole industry into uncertainty, thanks for planing the Nuke.

Telecom had no need to unbundle when the price was $45 and it also wasn't legally allowed to. It won't be able to until next year.

The turning point is a combination of price and quality of service. If Telecom is forced to pay the current rate for a degraded 32kbit/s service then I believe the company will have to seriously consider unbundling, especially when Vodafone, CallPlus and Orcon (its three main competitors) all have access to unbundled lines and can offer a better experience to customers.

I don't work for Vodafone, receive no funding for Vodafone and haven't done so for many years.

Paul, it would not be a "degraded" service. The new price has been set by the Commerce Commission. As per the rules that the Commerce Commission set themselves, this price pays for 32kbps per 15 minute period.

Chorus are providing substantially higher service than that for no additional cost. The Coalition has dragged Chorus through the gutter over the past month or so. In all of this, it is expected that Chorus will just turn around, smile, and continue working as if nothing had ever happened.

But Chorus is perfectly within its rights to throttle broadband to the speeds it is legally required to provide. Imagine if the peeps within Chorus finally stood up, showed some balls, and actually showed NZ what $10.92 gets you.

Pay peanuts? Get monkeys!

EY report shows there is a need for copper tax, or less cooperate rape should be done, as it states everything chorus could do and then left a funding hole of $200million. Also it compared the effective return for different monopoly companies in New Zealand and Australia, and the report says Chorus's current profit margin is below in terms of assets and above in terms of equity compared to others, and very close to the mean when take into account the debt adjusted asset to give a 8% return which is inline of the return for airport and many other monopoly sectors. If this is the best report to base the FPP review on, then the FPP review would move the copper price back to $45 per month or a bit higher adjust for inflation and extra risk with this sector. Just wait until the small ISP (who think the copper price would not go over $40) would go broke as the price is back dated, ISP bailout tax anyone?

I think you've misread the report.

EY says Chorus's return to shareholders is more than double similar businesses in both New Zealand and Australia.

It also says Chorus can take on a lot more debt before it reaches a troubling level.

The report suggests cutting the dividend for two years - I would suggest the dividend should be cut until the network is fully built. That would recoup almost all of the money without Chorus having to stuff up the entire copper industry, a move that would result in Telecom unbundling the network and the Commerce Commission investigating an abuse of monopoly power.

I think you've misread the report.

EY says Chorus's return is perfect normal currently, and compare it's current asset to profit it is well below the average of other monopoly companies in both New Zealand and Australia. Also it compared the cost of Fibre in New Zealand and Australia, and it is about 25% cheaper in New Zealand delivered by Chorus compared ot Australian counterparts.

The report suggests cutting the dividend for two years - I would suggest the dividend should not be cut and be at paid at current levels for the rest of the life of the company, also be increased every year by inflation. That is what every investor thinks is fair without even the need for any FFP review. If Telecom would make more profit unbundling the network, they would have done it ages ago and Chorus would welcome Com Com to do an investigation to find out how little profit it is currently making under this level of uncertainty.

No more cooperation rape, fair return for every monopoly company as set out in law (that means currently 7-10% on debt adjusted asset). If someone what to cut your income by 23%, rather than increase it with inflation what would you do, would you accept the pay cut due to some bullshit reasons from some self interest group. Unless Com Com can guarantee a 10% long term earning for Chorus on debt adjusted asset, there is very little chance Chorus could raise that much money in terms current shareholder would be happy with, if shareholder is not happy with, then they can vote on what they want Chorus to do to best represent their interest and I do not want that day to occur, as it would be really bad for everyone. So stop screwing Chorus over, I'm sure Chorus would do the best for everyone as it has always done.

And the report says that whilst Chorus does all these things to alter its financial position, there will necessarily be other costs which EY state quite clearly that they have not taken into account in this report. For example,the report does not preclude the effect of a downgrading of the credit rating which will increase interest costs. it does not take account of the impact of a share price that could still fall further, and thereby impact the credit rating independent of any other effects. It also does not take account of the delays in uptake of fibre that could push the project timeframe out further than the period considered in the original UFB proposal. All it says is that Chorus could restructure its finances in the ways indicated, but still be several hundred thousand short of what was anticipated to complete the build. Indeed, it reiterates Key's claim that the Commission decision has created a situation where Chorus's finances are under threat unless the deal is renegotiated.

Paul, so you're suggesting a bunch of "risk averse" investors stump up $500 million in cash and get ZERO return on that investment over 6 years. That's ridiculous. What sort of idiotic investor would do that? Are you sticking up your hand and opening your wallet for a slice of that kind of action? I bet not. 3.5% term deposit in a bank would be much better even after tax.

Let's not forget who and what started this debacle:
What: Inadequately defined legislative framework.
Who: Commerce Commission - for their strict adherence to the precise definitions of that legislation, and basing their pricing calculations on countries that are geographically nothing like NZ except for their government policy and procedure.

I notice that there has been very little in the way of rational explanation or defense of precisely how the ComCom arrived at it's bizarre final figure. That needs some closer scrutiny. As does the function and "independence" of the Commission itself when it's actions can arbitrarily destroy the credibility of a critical utility company because its mandate is not to take any business impact into consideration.

Has anyone looked at who in the Commission owns shares in which companies, and who's been buying and selling (including through trusts) and when? Has anyone looked into how lobbyists may be influencing ComCom decisions? (Both corporate and interest groups)

The decisions of the Commerce Commission need to be based on facts and precise measures. Not vague comparisons and speculation. Yes, the Commerce Commission is important and needed to regulate pricing of monopolies, but not so much so that it is done in a way that blindly disregards any and all impacts and outcomes.

UFB is important and needs to be built. Chorus is not asking anyone to pay extra for what it is already over-delivering on. Just continue to pay what's being paid today to fund UFB. How hard is that? If current broadband prices were poor value, then why do 95% of NZers have a connection?

The Commerce Commission did exactly what the law requires it to - benchmark against similar regulatory regimes. Population density has nothing to do with it.

This "started" with the Telecommunications Act introduced in 2011 that moved from a retail minus model to a cost based model. The same Act requires the Commission to benchmark and also requires the Commission to consider the government's investment in new technologies, but says very little about how it's supposed to do that.

The Commission benchmarked the prices, and instead of choosing the median price, or even the 75th percentile, it went the full hog for the 100 percentile, in order to take into account the government's investment.

Blaming the Commission for this is like blaming the referee for the rules he or she enforces.

The UFB is important and Chorus bid for the contract (and won) with a tender that included knowing full well that the price of copper would be regulated down heavily. Why else would they be given a three year holiday from it?

"The Commerce Commission did exactly what the law requires it to..."

Therefore Chorus will be perfectly within its rights to do exactly what the law requires of it - deliver ADSL broadband at a guaranteed 32kbit/s. Which makes a mockery of the law, in the same way the ComCom's interpretation mocks the original intent of the law therefore the law needs fixing. The legislation is faulty. We all know this. Of course TUANZ and CFFIP won't admit this.

Where in the report does it say Chorus is likely to raise $500m in new equity. You're absolutely nuts if you think they can.

Putting aside that the company is only worth $500m at present and unlikely to pay a dividend for 3 years, there might still be the odd person interested in a punt. But there won't be much interest simply because no one knows what the regulatory regime will be that applies to UFB and copper from 2020. There's just way too much uncertainty and a pretty good prospect of future price cuts. (plus that regulatory regime will likely be written by a labour/green coalition that seems to have a passionate dislike of Chorus)

The "odd person willing to take a punt" will be the long-term investors who see a regulated provider that will continue to hold the vast bulk of its monopoly as it transitions from one technology to another.

Very few monopolies get to do that.

I can see the pension funds of the world (risk averse, low but steady rates of return) taking a keen look at Chorus. That those excitable retail investors don't want to know is probably a good thing.

How can you say Chorus is suitable for "risk-averse" investors when ComCom, with no skin in the game, can just come in and trash your business model "because people just really want cheap stuff". How much money have you got invested in Chorus. Would you recommend to any of your friends to invest in Chorus?

As somebody said above, ComCom will come in again and force a price drop on fibre "because its fair". Oop, no more dividends for a few more years. If my kiwisaver now suggested investing in Chorus, I would change provider.

And with a change of government possible next year ( because more kiwis want cheap stuff?) , it is likely Chorus will be nationalised anyway -KiwiInternet? (although if the government does change, internet and phones will probably be the least of your worries)

Chorus has been granted a near monopoly on fibre to the home in New Zealand. If it can't make a reasonable profit from such a deployment then I don't know of any business that could.

Former state-owned monopolies are not the cash cow they once were but still make healthy, continual, long term profits and attract risk-averse investors.

That the Commerce Commission can and does regulate the company should be welcomed by sensible investors because monopolies should be regulated.

The investment profile of chorus should show the company investing heavily in fibre at this point in its growth cycle. That it feels able to take public funding in and pay out huge dividends at the same time shows it hasn't grasped what the government wants.

The answer to regulation in copper is to move customers as quickly as possible to unregulated fibre. Instead, we see a company engaged in something Simon Moutter calls "walking backwards slowly" and it is a poor strategy to put it mildly.

The fly in the ointment is the low takeup of fibre - 3% is it at the moment? And the coalition seems to be more focussed on copper - I definitely dont see them pushing fibre ie adverising, etc. If everybody is moving to fibre, why are you/ they bothered what the copper price is. The answer, imho, is they arent moving. And the mandated dropping of copper prices will encourage them to stay on copper. Ok, I am not seeing much in the way of future revenue stream for Chorus in this picture. Yes, they may have screwed things up but I see a Commerce Commision who thinks quarter-acre New Zealand should be compared with large, dense Scandanavian cities of apartment building a bit of a croc.

I could not agree more to what OneTrack said. Also Fibre and Copper is one network, Chorus should be guaranteed a percentage (7-10%) of profit based on debt adjusted equity like every other monopoly compay, then no one would be accusing Chorus earning too much, Chorus would have nothing to complain and would be in the best interest of everyone to provide the best service they could provide.

Also Paul, I don't think you have a say on how Chorus should spend its money, unless you are a shareholder then you get a vote based on your amount of shares.

Your target of 7-10% is roughly half the profit Chorus is currently taking, according to the EY report.

Copper and fibre are two entirely different networks and should be treated as such. Copper is fully regulated - fibre is not regulated at all.

...but fibre WILL be regulated and that's the next sword of Damocles hanging over the heads of the investors who will no doubt scarper for the hills the moment that spectre raises its head again in the next decade.

The Coalition was formed to oppose an unwelcome and, it seems, unnecessary tax on copper lines to pay for the UFB, not to lobby customers to tell them about the wonderful world of fibre.

The RSPs, Chorus and the LFCs are all charged with doing that. The single biggest issue facing the rollout is the lack of legal HD content that will drive uptake.

I'll get UFB the moment it's available because I'm a geek who wants fibre speeds. My parents already have the internet and it's good enough.

But if I tell my mum she can get Coronation Street 24x7 or my Dad that he can watch BBC iPlayer, they'll dig the trench themselves.

We need to push uptake figures - I absolutely agree. But that's not the job we're doing here.

Perhaps a good question to ask Mark Radcliffe is why Chorus latest dividend payout of $80 million was so high when they had so many forward costs in front of them?

This amounts to reckless trading, not disimilar to Hanover finance directors removing hugh dividends before going bust. Directors duties require them to keep the operations of a company solvent. If government wants to intervene, they should look to suing the directors. Chances are they wont, due vested interests. That shouldn't stop private investors who bought in recently post dividend at $3 per share, to a technically insolvent company.

Less cooperate rape, more fair return, can't be more spot on. When a stock have the potential to go down by 50% and people say it will be attractive to risk averse fund managers, yeah right. What stops com com to cut the price even further in the future when chorus is making money again on fibre. It is turning into an organised crime in stealing what is rightly Chorus's. We should all get together to against cooperate rape, as we would never know which NZ company will be raped next.

Spot on J.S., could not agree more.

Hey Paul, who pays your bills ? isn't it Voda, Orcon and Callplus. Also who did you get money from to keep internet NZ going?oh thats right the govt. Pot kettle black! You do not represent Kiwis you represent your own interests and the people that line your pockets with Gold. If you were so in need of money how come you just updated your office ? Time to get some real morals again there Paul and lets be fair you will go with what ever Big red says anyway as you were one of their own not too long ago. Worst part is you dont report the facts. I think you forgot what facts are.

Hello Kate.

I don't work for InternetNZ.

TUANZ receives no funding from government.

TUANZ receives no funding from Vodafone. Both Orcon and CallPlus are members of TUANZ but receive no special favours as a result

TUANZ doesn't have an office. We co-locate with InternetNZ which generously gives me space for a desk in its Auckland office for which we pay nothing.

You may wish to check your "facts" before condemning me for mine.

"TUANZ receives no funding from government"

No government departments are members of TUANZ? No government departments sponsor TUANZ events?

Having departments as members? Yes we do. Several in fact. They receive a discount to attend our events (typically 100% for members only events) so it makes financial sense for them.

We also have govt departments that aren't members who attend events. Ironically they pay more per annum as they pay full rate.

No government departments have paid for us to host events.

That's quite different to "receiving government funding" in my view.

If you'd like to join to support our work and to get discounts on our events, the details are on the TUANZ website: www.tuanz.org.nz

Fair enough Paul, seems I had some wrong info provided to me by an ex work colleague of yours. I stand by my statement about your MORALS. you had some before now all you do is muck rake and cause trouble for companies that you have a personal vendetta against. In your coppertax stance you are doing what's in your personal interests and no more. What you and hooten are doing is stuffing up new Zealanders internet future. With cutting money, chorus will never extend the network to people that have no service now. If you can't see that, I'm sorry but you are not very smart. No money = no more internet for people who needs it. Nice work, my family has no internet at home. Chorus tells me directly that I probably won't now as there is no money to do it now. Nice work Paul

Kate, I work for my members who are all customers one way it another of the telcos. Throughout TUANZ history we have repeatedly stood up for customers' rights whether it's fighting the mobile duopoly, demanding the right to unbundle, fighting off the ten year regulatory holiday or in this case fighting a government that wants customers to pay more for broadband.

That's what we do. It's why we exist. To give our members a voice at the table whenever such things are being decided.

Paul,

If you were fighting for the consumers you'd be putting more pressure on RSP's to ensure that they pass on the savings currently being ripped out of Chorus. So far all you've done is make excuses on their behalf, claiming that they'd be silly to pass on the savings under the current uncertain environment under the prospect that they could have to pay it back.

Are you advocating the ComCom proposal that they speed up the Final Pricing Principle decision so that this uncertainty is lessened? of course that means less fat for the telco's and we've already seen Telecom and Vodafone try to delay the FPP.

We are indeed putting pressure on the RSPs to pass on the savings and you as customers have the power in that regard - if your telco doesn't reduce the price or give you more for your money then you need to move to one that will.

Since the introduction of telco regulation the price of telecommunications has dropped by over 30%. Today I get double the speed and 1000 times the data allowance I got in 2003 for the same dollar amount and I suspect most people are in a similar boat.

In fact, I'd be hard pressed to buy the service I had in 2003 because the market has come on such a long way.

If Chorus is negotiating with Crown Fibre and genuinely wants certainty, it would ditch the FPP requests and the legal action and actually talk about the real problem in the room - its dividend policy and its debt ratios.

Were you misquoted on stuff?

"Telecommunications Users Association chief executive Paul Brislen said internet providers would be quite foolish to pass on next December's savings if there was a risk they could be retrospectively reversed "or worse" a year later"

And please explain why Chorus shareholders, who are taking all the risk in funding this network should not ba able to enjoy are return on investment? I guarantee you that the ACC and Milford did not buy in under the assummtion of no dividends in the next 7 years. They bought in based on the obvious result of the FPP which will increase the price back to a fair return on investment.

Are you not pushing your own agenda - you critise Paul for doing this -you want internet at home and want other users to pay for it.

I assume you have no mobile coverage either. What about satellite there are options. They might cost but that was your choice to live where you do.

We feel sorry for you C Kate, everyone should just pay a few dollars more a months just the price of a beer to get a quality service, and with more people getting it.

Currently Telecom has about half the revenue per employee as its competitors. I think your assumption that they will unbuindle to improve performance rather than just pay a bit more for a better Chorus service suggests a lack of understanding of how capital works (as does your article above)..
Note that perhaps you should be asking why current companies who are able to unbundle dont try and do so now, especially when one of these is one of the largest Telcos in the world. surely now would be the most economical time to unbundle, before the price cuts come in. You might find it has the same answer

Sounds interersting when Paul stops commenting when he gets cornered on particular points.

BTW, dividend of 80 million is nothing compared to the overall cost of UFB. Ok, so let us assume chorus reduces its dividend payment to a fifth of what it is now , that will still mean on 60 million dollars a year. Is that enough to plug the funding gap?

BTW Paul, if you think Chorus needs to be tamed and reduce its monopoly behaviour, would you be ready to take over as its CEO and do what you now want Chorus to being doing?

Let me declare I do have a few (very few) Chorus shares, but I am yet to check out how much I received as dividend last year. So you may say I have some self interest here, but it is a very loose self interest when I can't even be bothered to find out how much I have received as dividend. My comments here are based on some reality check. I won't be upset if Paul takes over as CEO of Chorus and the first thing he does is to cut dividend payout.

If I haven't answered any questions, feel free to ask again. I've replied to just about every comment on this thread.

The gap Chorus is talking about is $147m a year on average (we have no proof of this of course). Your dividend number is somewhat out - closer to $90-$100m a year, so assuming 4/5 of that we're talking about removing most of the problem. I'd go further, and remove the dividend payout altogether for the seven years of the build - that leaves $47m a year to find.

That amount can and should be easily recouped by debt raising - as Lance Wiggs points out in NBR over the weekend, Chorus is miles away from its debt ceiling and several people have pointed out it should raise funds to see this project through.

The benefit to Chorus is a monopoly position for the foreseeable future in the fibre space for 70% of the population. That should be a viable business, to put it mildly.

If the board wants to vote for me I'd have to decline on the basis that I won't join any club that would have me as a member.

Paul, please explain who you expect is likely to invest in anything that provides 0% return over 7 years.

I think if you read this story on today's NBR:

http://www.nbr.co.nz/article/analyst-looks-past-dividend-pain-upgrades-chorus-buy-ck-p-150116

you'll find that there are plenty of people willing to buy in. ACC and Milford Asset Management just bought in and now Craigs is listing it as a 'buy'.

It's a long-term stock, not a high risk/high yield stock.

This is hilarious reading. So much opinion, expressed as vested interest, for little more reason than to shoot the other down.

Instead, here's a solution based on one piece of this analysis that is missing: what transference from DSL to UFB does this analysis assume?

If that uptake were accelerated, then Chorus' cash flow problem would be reduced.

That reduction would be maximised if each household were upgraded to fibre at the time that Chorus are in the street. Revenues would increase and costs would fall (fewer truck rolls for Chorus to connect households). Make the current free connection deal contingent on upgrading at that time and then we would have little concern about low uptake rates. Yes that would require more capital in the early stages of the roll-out - I see that as the government's cost for their stuff up in creating this furore.

TUANZ has also previously stated a preference for a cost-building block pricing approach to UBA, because: “It reflects the actual costs structures rather than the theoretical ones implicit in modelling methodologies. Further, it takes account real costs incurred in New Zealand, rather than the costs in other countries which are the
foundation of benchmarking."

Do you stand by this Paul?

You've asked this on another thread - answered over there.