Chorus sees growth in high-speed connections, talks up network value

Chorus [NZX: CNU] is seeing growth in its high-speed fixed line connections as it continues to roll out the bulk of the government-sponsored ultrafast broadband fibre network, and is talking up the value of its lines as it tries to deflate the threat of price regulation.

The Wellington-based company added 6,000 fixed line connections in the three months ended Sept. 30 taking its total to 1.78 million, with 15,000 more broadband connections for a total of 1.18 million. Of that, fibre line connections rose to 53,000 at the end of September from 42,000 at the end of June, with 41,000 broadband fibre connections up from 31,000. Its very fast digital subscriber line (VDSL) service, which provides high speed broadband over its regulated copper lines, rose to 61,000 from 49,000 and naked VDSL broadband rose to 19,000 from 15,000.

In slides accompanying a presentation to analysts, the network operator said there is a steady migration away from basic copper services to the high-speed copper and fibre connections, with voice lines declining, though still representing a quarter of the firm's connections.

Chorus said it was 34 percent through the UFB roll-out, with the build completed for 286,000 premises and 386,000 end users within reach of the government-sponsored network. It also had 75,000 lines within reach of better broadband under the government's Rural Broadband Initiative.

The network operator has been trying to mitigate the impact of looming regulation on its charges for access to its copper line services, still the bulk of its business, and has sought a final pricing principle (FPP) review by the Commerce Commission, which means the watchdog will have to determine an economic cost model to find the true cost of the service rather than relying on international experience as a benchmark.

Chorus is holding a briefing for analysts today, which will show modelling work it's commissioned suggesting the cost of rebuilding its copper network without re-using any existing infrastructure would be about $16 billion. Two other scenarios put the value of the network at $13 billion or $8 billion.

"While that full valuation of the network provides a valid starting point for considering value, FPP prices determined by the commission are expected to be less given the range of matters upon which it will ultimately take a view," chief executive Mark Ratcliffe said in a statement. "We have consistently said that we believe evidence does not support aggregate copper pricing below demerger levels of around $45 a month, and that rebalancing is likely between layer 1 and layer 2 pricing, and the progression of modelling continues to support this view."

The regulator is scheduled to release its draft findings on Dec. 1, with a final decision by April next year.

Chorus has been battling the regulator on several fronts, losing a bid in the Court of Appeal to overturn the initial price determination, which was based on international benchmarks, in September, and by seeking to introduce new services which it says should fall outside the scope of regulation.

Shares of Chorus were unchanged at $1.85 yesterday, and have gained 28 percent this year, recovering from last year's punishment at the height of regulatory uncertainty.

(BusinessDesk)