IT Brief NZ - Copper lines could crash fibre investment

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Copper lines could crash fibre investment

Chorus, the telecommunications network operator, says copper lines regulation threatens to derail investment in building a national fibre network by undercutting the new technology.

Chief executive Mark Ratcliffe told shareholders in Wellington the decision to split Chorus out of Telecom as a standalone entity was on the idea that "fibre pricing was set so as to be attractive in comparison to the copper pricing" and that regulation could undermine that goal.

"Investors continually said they don't understand the rationale for pricing on copper-based services potentially being reduced at the same time that taxpayers are supporting a government backed generational change to fibre," Ratcliffe said in speech notes published on the stock exchange.

"They are clear that reducing the price of copper services will inevitably slow the uptake of fibre."

Chorus was spun-out from Telecom as a separately-listed company last year to free up the telecommunications company from its regulatory burden and allow the network operator to successfully win a billion dollar subsidy to build a nationwide fibre network and rural broadband system.

Some 80 percent of the network company's revenue is still derived from the ageing copper network, and is subject to a pricing review by the Commerce Commission.

"It is crucial that any regulatory decisions reflect the generational investment that we are making and support an efficient industry transition," Ratcliffe said.

"The commission's final UCLL (unbundled copper local loop) decision due late next month, followed by a draft decision on broadband access pricing shortly after, will be the clearest indications yet on whether fibre is indeed to be the industry's focus," he said.

Chorus reported a profit of $102 million, or 26 cents per share, in the seven months ended June 30, on sales of $613 million in its maiden result as a standalone company.

Chair Sue Sheldon told shareholders the looming regulation means the board hasn't been able to firm up guidance on dividend payments beyond the 25.5 cents per share return flagged for 2013.

"Because Chorus is a wholesale provider, there is nowhere for a revenue shortfall to be absorbed, if Commerce Commission price reviews mean that Chorus does not recover its costs," Sheldon said.

"Without the regulatory uncertainty, the board expects Chorus would have been able to announce a dividend policy consistent with modest long-term dividend growth, subject to the standard caveat of there being no material adverse change in circumstances or operating outlook," she said.

Sheldon said the board is considering a dividend reinvestment plan might apply from the 2013 dividend and beyond.

Chorus shares were unchanged at $3.36 in trading today, and have gained 8.3 percent this year.

The stock is rated an average 'outperform' based on 10 analyst recommendations compiled by Reuters, with a media target price of $3.45.

By Paul McBeth - BusinessDesk

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