Spark suspends profit guidance in wake of Chorus decision

Company mounts counter-attack.

Spark [NZX: SPK] has suspended its 2015 earnings guidance following the Commerce Commission's controversial ruling on Chorus wholesale pricing yesterday.

At its full-year earnings announcement on August 22, Spark said it anticipated low single digit growth in adjusted Ebitda for the 2015 financial year.

In a notice to the NZX, Spark said its financial guidance is based on the Commerce Commission's initial determination to cut the price of a standard copper connection to $44.00 to $34.44 — a price that came into effect on December 1, and will remain in place until April next year when the regulator makes its final ruling.

The Final Pricing Principals (FPP) decision released yesterday — which saw the Commission rope in a French consultancy to help review its own decision — saw a draft recommendation that a $38.39 price be set.

Spark CEO Simon Moutter said the draft decision would add $60 million a year to the costs his company had anticipated with a $34.44 price point.

"FPP charges, if implemented in line with the draft, will materially increase Spark New Zealand’s input costs and will have a negative impact on FY15 financial guidance if the new charges take effect during the current financial year," Spark said in its statement to the NZX.

"The extent of the impact in FY15 will be dependent on both the final determinations, timing of implementation (including possible backdating) and any revenue impacts resulting from competitive market dynamics. We are not in a position to provide updated guidance at this time, but will provide an update when more information becomes available."

On the other side of the coin, Chorus said the draft FPP decision would reduce the ebitda hit it took from the new regulated copper line wholesale price from $170 million a year to $80 million a year. While, Spark has been planning for the best, Chorus had been planning for the worst, with dividend suspensions and other cost-cutting measures already in place.

Chorus shares [NZX:CNU] surged 17% yesterday yesterday, while Spark [NZX:SPK] fell 3%.

A bunfight is now on ahead of the Commission's final price ruling in April. Spark and other retailers have already gone public with talk of possible price rises in a bid to put political and popular pressure on Chorus.

Spark and others also maintain the regulator has followed an inconsistent process.

InternetNZ has also criticised the Commission of leaving the market hanging on the key question over whether payments will have to be backdated if the regulator sticks with $39.39 a month rather than the initial $34.44.

ckeall@nbr.co.nz

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