Regulatory regime still 'a sticking point' – Chorus

Chorus encouraged by the discussion paper on the future of regulation.

See also: Chorus hopes to have acceptable service levels by Christmas

UPDATEDChorus [NZX: CNU] is "cautiously optimistic" a new regulatory regime from 2020 will deliver more certainty for investors in the telecommunications sector, chairman Patrick Strange  says.

Speaking at the company's annual meeting in Wellington, Mr Strange told shareholders the country's regulatory environment is still a "huge sticking point" stifling its ability to invest in its telecommunications network, and resuming dividend payments, but the prospect of a similar model used by the electricity sector is a positive.

"Looking long-term, which is the most important thing, we think the 2020 review of the regulatory regime is immensely important and we would like it to go to a traditional regulation building block model which is what I'm used to in all the other businesses I've been involved in in New Zealand and offshore and makes it much more predictable," he says.

"We're also encouraged by the discussion paper on the future of regulation – there's a pretty strong steer towards a building block model, so I think it's fair to say we're cautiously optimistic."

Last year, Chorus suspended dividends when it renegotiated the terms of Crown funding for the ultra-fast broadband fibre network, following regulatory uncertainty about copper network access prices. That prompted the company to clamp down on spending to help bridge the funding gap caused by the commission's initial decision, while remaining within its banking covenants.

The Ministry of Business, Innovation and Employment discussion paper on the review of the Telecommunications Act says there is an opportunity to consider reforming wholesale copper pricing, and that the government's early view is that the benchmarking process stoked regulatory uncertainty due to its untested nature. The paper says there is a case to put both fibre and copper service prices on a building block model similar to that used in the electricity sector, where the value of the underlying network is locked in, and the regulator sets a maximum level of revenue generated form those assets.

Communications Minister Amy Adams last week told the APEC telecommunications and information working group the country's "current process for setting wholesale prices for the copper network might not be the best approach in a fibre-based world."

Mr Strange, a former chief executive of national grid operator Transpower, says the difference between the regulatory regimes of the electricity and telecommunications sectors is "electricity has an orthodox regulatory regime that recognises the need for the investor to be able to rely on it for the 30 years of returns required."

The Wellington-based company will make a submission on the review, which closes today.

Mr Strange says the board has been "pretty strenuously" arguing its case to regulators, but  the company's hands are tied on resuming dividends until the Commerce Commission makes its final determination on the price it can charge retailers to access its regulated copper line network. He says an update on the dividend is likely to come when the company announces its first half result.

In response to a question from New Zealand Shareholders' Association representative Vinny Venkatesh, chief executive Mark Ratcliffe says Chorus hasn't drawn down on a funding backstop from Crown Fibre Holdings, meaning the government agency won't influence the resumption of dividends.

Shareholders were also asked to vote on the election of Mr Strange and former Foodstuffs North Island managing director Murray Jordan, and the re-election of deputy chair Jon Hartley and Prue Flacks to the board.

Chorus shares rose 0.4% to $2.885 and have gained 8.1% this year.

(BusinessDesk)

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