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Chorus gets its wish for fast-track pricing review; shares jump

$1 billion of ebitda in the balance. High Court appeal decision also looming. UPDATED: Shares jump

Chris Keall
Fri, 28 Mar 2014

UPDATE: Chorus shares [NZX: CNU] closed up 6.46% to $1.73.

EARLIER: Chorus has been granted its wish for a key pricing decision review to be accelerated. In the company's view, and that of an independent EY report for the government, $1 billion of ebitda is in the balance.

The Commerce Commission has today indicated that it intends to complete its final pricing principle (FPP) reviews of the prices Chorus can charge for both the unbundled copper local loop (UCLL) and unbundled bitstream access (UBA) services by November 30,  2014.

The regulator originally said the FPP reviews would take up to two years.

Chorus suggested a fast-track approach that would see the separate UBA and UCLL reviews linked, and the whole process resolved before December 1, 2014, when the Commerce Commission's mandated 23% price cut is due to kick in. 

In a submission, the company was also seeking tweaks to network cost modelling, which it sees as a greater focus of the FPP than international benchmarking (the focus of the Commission in its earlier determination to cut copper pricing). However, it was not immediately clear what if any other Chorus sugggestions the regulator took onboard. The regulator did not immediately respond to an NBR inquiry.

Chorus spokesman Ian Bonnar indicated his company had not, either.

"[It is] potentially good news on the face of it as we all want to get through the process in a timely fashion. We’re looking forward to learning about how the Commission is aiming to achieve that timetable," he told NBR this afternoon.

Chorus claims the wholesale copper price cut will dent its ebitda by $1 billion between now and 2019, inhibiting its ability to fund its leg of the UIltrafast Broadband (UFB) rollout. Opponents claim that if the regulator's decision is over-ruled and copper line pricing remains at its former level, more of the money will go to Chorus shareholders as dividends than toward the UFB.

The FPP review happening in parallel to a Chorus High Court appeal against the Commerce Commission's decision, and ongoing talks between the company and Crown Fibre Holdings over cost-cutting (which have already yielded some modest gains for Chorus, which now gets access to tranches of the Crown's $929 million investment sooner, a more flexible rollout timetable, and no longer has to run fibre all the way into multitenanted buildings like apartments) .

A decision was reserved in the High Court hearing, but Justice Stephen Kos indicated it would be delivered on or around April 10.

A person close to the case tells NBR Justice Kos is "a smart cookie who won't muck around." 

However, if the April 10 target is not met, Justice Kos is then scheduled to go on leave - likely delaying his ruling for several more weeks.

During the hearing, Justice Koz said he would have serious reservations about setting aside the review and ordering it to be done again.

Chris Keall
Fri, 28 Mar 2014
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Chorus gets its wish for fast-track pricing review; shares jump