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Chorus says cheaper copper line access will have

Friday 4th May 2012

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Chorus, the telecommunications network operator carved out of Telecom last year, faces a “modest impact” on short-term earnings from the regulator's initial view that copper line prices should fall, though beyond 2015 things are murkier.

In a draft determination, the Commerce Commission indicated it wants to reduce the geographically averaged unbundled copper local loop (UCLL) service to $19.75 a month from its current price of $24.46 over two years.  The average price is made up of a current urban price of $19.81 and a price for rural customers, the biggest beneficiaries of the change, of $36.63.

That means cheaper access to Chorus’s copper network for rivals. UCLL lets Chorus's competitors use the copper network between an exchange and an end-customer's premises to offer their own voice and broadband services.

Chorus has some 90,000 lines that would be caught by this change, and the bulk of those are in urban areas, meaning the network operator wouldn't face too much stress on earnings, chief financial officer Andrew Carroll told an investors' conference call today.

"The near-term financial impact would be modest," Carroll said. "Longer term is subject to a number of variables" as the regulator reviews the pricing of other services, he said.

Price cuts could impact on future returns to shareholders, one of the big attractions for investors when Chorus was spun out of Telecom last year.

"The board has made no decision concerning dividend policy for 2013 and beyond, and this is something we would need to factor into that," Carroll said.

Chorus shares sank 5.1 percent to $3.34, the lowest level since April 16.

Wholesale prices for access to the copper lines were averaged as a result of legislation enabling Telecom to carve out its Chorus unit last year, something that annoyed rival telecommunications companies who say it would lift their costs. The de-averaged urban and non-urban prices are $15.82 and $29.19 respectively, the regulator said.

At the time of the legislation, Ministry of Economic Development officials downplayed concerns about the impact on copper-line prices, saying it wasn't "deemed significant" and that any increase in UCLL pricing may “have the positive impact of encouraging more investment and innovation on fibre.”

Chorus chief executive Mark Ratcliffe told investors “it is a shame industry is centred around prices of copper" rather than investment in the nationwide fibre network.

The regulator wants to cut the geographically averaged price after relaxing population density criteria because New Zealanders are spread more thinly around the country than other nations.

The commission is also consulting on whether there are grounds to investigate whether the pricing principles for the unbundled copper low frequency service (UCLFS) should be tweaked. The UCLFS lets telecommunications companies access and connect with the low frequency in Chorus' copper local loop network, which connects an end-user's building to the handover point in the local phone exchange.

The UCLFS price is the same as the UCLL price, though the services are different. Chorus may "under-recover forward-looking costs" for the low frequency service, the regulator said.

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