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Chorus lumped with 'regulatory risk premium', Sheldon says

Wednesday 30th October 2013

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Shares of Chorus, the telecommunications network operator, are weighed down by regulatory risk premium because of the threat of enforced price cuts for access to its wholesale copper lines, according to chairwoman Sue Sheldon.

Speaking at today's annual meeting in Wellington, Sheldon criticised the Commerce Commission's decision to press ahead with enforcing sharp cuts to the copper lines, saying it undermined the government-sponsored nationwide fibre build. If the current regime is kept, Chorus faces another four years to de-link itself from Telecom Corp after its split in 2011, and that's without any litigation dragging it out further, she said.

"Investors now attach a regulatory risk premium to Chorus and this has implications for our cost of capital," Sheldon said. "The application of the regulatory framework to date has left investors telling us that New Zealand telecommunications is basically un-investable."

Since the Telecommunications Commissioner Stephen Gale first outlined plans to regulate cuts to the copper prices in December last year, Chorus's shares have slumped 23 percent, trading unchanged at $2.61 today. Communications Minister Adams sought a review of law governing the sector, saying the proposed regulation would undermine the fibre network build.

Sheldon, who contacted both Prime Minister John Key and Communications Ministers Amy Adams to put forward the company's point of view on the regulation, said this was a "nonsensical situation" and that it was the government's prerogative to go over the commission's head to achieve the policy outcomes it wants.

Chorus has come under mounting pressure from consumer and telecommunications lobby groups, claiming the company will unfairly benefit by the government's move to head off the regulated price cuts.

The proposed cuts to copper pricing came after a three-year freeze and were seen as a way to offset the national averaging of the price of unbundled copper local loop access, which effectively increased prices for urban customers, accounting for about 70 percent of users as part of a proposed transition period.

Gale's final decision is scheduled for Nov. 5, and Sheldon said the company will be in a better position to given an updated assess of its impact on the business after its release.

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