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UPDATE Chorus shares slip after 'pragmatic' deal with Crown Fibre

Tuesday 11th March 2014

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Shares in Chorus slipped after the telecommunications network operator said it reached an initial deal with Crown Fibre Holdings to manage cash flow and provide more certainty for the ultrafast broadband roll-out.

The telecommunications infrastructure company has been given greater flexibility in building the network, provided it meets agreed deadlines to complete the national fibre roll-out, and Crown Fibre Holdings will more closely align its existing funding with completed work as long as certain conditions are met, Chorus said in a statement.

"Sensible and pragmatic is probably the best way to sum it up," said Matt Goodson, managing director at Salt Funds Management. "It introduces some important flexibility for Chorus in terms of where it rolls out fibre and when."

The shares declined 0.6 percent to $1.55 and have gained 8.3 percent this year after being punished by investors last year over the regulatory risk.

Salt Funds' Goodson said investors still have some questions about the detail of the new arrangements, but that if Chorus can get through the next two years building the network, things will get easier.

The deal will give Chorus more scope in deploying UFB to areas where it already has existing fibre to meet property user targets by the end of next year, will let it make use of existing cabling to deliver UFB services to multi-dwelling units, and charge property developers up to $900 for the reticulation of lines in greenfield UFB areas.

Chorus chief financial officer Andrew Carroll said it was too early to put a dollar value on the agreed changes, but that this initial set of initiatives will help the company deliver UFB faster, smoother and cheaper.

"This flexibility will enable Chorus to better manage its cash flow through the peak of the balance of the capital intensive period of the build, as well as addressing some of the $1 billion funding gap" created by last year's Commerce Commission decisions that slashed the price of unbundled bit access, an element of the current copper wire network, further than Chorus had expected.

Communications Minister Amy Adams welcomed the first tranche of agreements, saying the changes are within the government's $1.35 billion fiscal envelope to support the fibre network.

"The overall timeframe for the roll out, the start and completion dates for each candidate area, the coverage area, and the completion date for priority users are all unchanged," she said in a statement. "I am advised that talks between Crown Fibre Holdings and Chorus are on-going in respect to possible further adjustments to the companies' contract."

Last month Chorus announced plans to scale back re-investment in its ageing copper network, which faces regulated price cuts, while introducing new unregulated revenue streams and cutting costs, including probable job cuts. It also suspended payment of an interim dividend.

Last year the Commerce Commission proposed cutting the network operator's pricing on its copper line services, which Chorus says has left a $1 billion hole in funding the roll out of the government-sponsored ultrafast broadband network.

Other changes to the agreement will see Chorus increase its non-standard installation fund by $8 million, while cutting its annual fibre marketing spend in half to $2.5 million.

This is the telco that has the government contract for Ultra fast broadband.

The share price has been smashed since it was separated from Telecom.

Click here to see what IRG Research has to say about the stock.

BusinessDesk.co.nz

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