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Chorus faces up to $10 mln earnings hit in 2014 from latest regulator pricing decision

Thursday 24th April 2014

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Chorus, the telecommunications network operator, expects 2014 earnings will be as much as $10 million lower after the Commerce Commission pressed ahead with a decision to raise the price of another component on the company's copper lines, and backdate the charge.

The Wellington-based company expects earnings before interest, tax, depreciation and amortisation will be $9 million to $10 million lower in the 12 months ending June 30, as a result of the regulator's decision to align the price for Chorus's unbundled copper low frequency services (UCLFS) with the benchmarked unbundled copper local loop (UCLL), backdated to Dec. 3, 2012. The backdating means Chorus will have to pay back its over-charged customers with interest.

After 2014, the company expects Ebitda to be about $6 million lower in the subsequent years, in line with its December guidance on the potential regulation.

Chorus said it now expects 2014 Ebitda to be between unchanged and 9 percent lower than last year's $654 million.

UCLFS lets telecommunications companies provide voice services using the low frequency band on the copper local loop network. UCLL lets telecommunications companies use the copper network between an exchange and an end-customer's premises to offer their own voice and broadband services.

The Telecommunications Act requires the UCLFS price to be the same as the UCLL price.

The commission set the UCLFS charges in November 2011, the month Chorus was officially carved out of Telecom, saying at the time it would update the connection and transfer charges for the service once the UCLL pricing review was complete.

In the UCLL determination in 2012, the regulator affirmed its view that a single price for the services was appropriate.

The UCLFS component of the copper lines is a small part of Chorus's ongoing dispute with the regulator as to what it can charge for its services. Chorus has warned the regulation of its unbundled bitstream access services, which lets internet retailers to use Chorus's components on the copper lines without having to replicate them, could cut Ebitda by up to $142 million.

Shares in Chorus were unchanged at $1.78, and have gained 24 percent this year after being punished in 2013 during the height of the regulatory uncertainty.

BusinessDesk.co.nz



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