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Chorus pushing away business with security review

18 Mar 2016

I had heard some rumblings in the industry about Chorus reviewing its financial security arrangements with retail service providers (RSPs) and then coming to them asking for twice their monthly spend as security. Today our account manager asked us for just that.

The official line is that they are doing this to ensure they are in line with equivalency requirements which they agreed to with the Government as part of their Ultra-Fast Broadband (UFB) contract with Crown Fibre, essentially ensuring that they would treat all ISPs the same.

When DTS started working with Chorus many years ago, we had no idea what our monthly spend would be or how fast it would grow, so both parties agreed it was reasonable for DTS to provide $10,000 to Chorus as security. Some ISPs may well have got away with providing nothing, others may have already been at a point where their spend demanded a higher security payment when the requirement came into being.

Now Chorus is looking to bring all ISPs into line.

UFB has meant that Chorus is the default choice for fibre services in much of New Zealand, and their CRT (regional backhaul product) has only increased that trend, but they appear to be the only company enforcing this security policy - leaving many of us in the industry looking at how we can reduce our spend with Chorus in order to lessen our obligations.

I know of a couple of ISPs in the NZ market that already have such a large monthly spend with Chorus that providing Chorus two times that amount for security is actually putting their business at risk. If you spend $100,000 excluding GST per month with Chorus, they are asking for $200,000 in security, either in cash or as a bank guarantee. That could hurt a mid-sized ISP. And this scales proportionately, so it will be interesting to see how the biggest players react.

It is one thing to treat defaulting customers all the same way, but why target those of us that pay on the 20th of every month without fail? Why arbitrarily apply a policy that will actually hurt the uptake of UFB and see companies like DTS proactively move business to regional carriers?

Install delays and unnecessary complexity already casts Chorus in a poor light and this will only hurt them further. But the reality is that the Government has created a monopoly, leaving Chorus able to set the conditions that the rest of the market must abide by.

Here is what Chorus should do. Have a trigger - a point at which payment terms are breached and that then triggers a security request. Apply that principal uniformly. But, don’t arbitrarily suck money from the market to address an issue that doesn’t exist. The money Chorus will sit on, or equity they will tie up through bank guarantees, would otherwise be spent on new PoP’s, more infrastructure, jobs and R&D.

This does present a great opportunity for Vodafone, Kordia and Vocus though. If they can match Chorus CRT pricing, ISP’s would be mad to use Chorus. Likewise, any carriers not currently providing UFB equivalent services (Vodafone, Vector, CityLink) get on it, Chorus just made you a better option.

Article by Brendan Ritchie, CEO at DTS

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