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Chorus points to copper pricing announcements in ASX 'please explain'

Friday 29th November 2013

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Embattled telecommunications network operator Chorus has pointed to speculation and political comment about regulated pricing for its copper network in a 'please explain' notice from the Australian Securities Exchange about its plummeting share price.

Chorus said it had been "the subject of third party announcements and considerable third party speculation, particularly concerning the UBA (unbundled bitstream access) pricing process," in response to a query from the ASX. Other than that, the company said wasn't aware of any information that hadn't been announced, and that it continued to comply with the listing rules.

The Australian stock market operator queried a fall of as much as 18 percent in the company's trading price on the ASX over the past week.

Shares in Chorus fell as low as $1.47 on the NZX today, and recently traded at $1.525, down 15 percent on the day, and were down 16 percent at A$1.36 on the ASX.

The stock has shed more than half its value since December last year when the Commerce Commission first indicated plans to impose sharper cuts to the regulated price on the company's copper lines than either Chorus or the government had anticipated.

Today's slump comes after the National-led administration's support partners came out yesterday in a seemingly orchestrated manner saying they would oppose legislative action in setting the price Chorus charges on its copper network, thereby limiting the government's options.

James Lindsay, senior portfolio manager at Tyndall Investment Management, said the removal of legislation options means investors have to take the Commerce Commission's price determination as gospel, leaving Chorus unlikely to be able to pay dividends, and probably in need of raising fresh capital.

"You've got to pity them now - they were doing the hard yards in actually making a good stock of building the UFB (ultrafast broadband network) and now they've sort of been slightly abandoned," Lindsay said.

The government has hired Ernst & Young Australia to run the ruler over Chorus's books to see if it has the financial capability to deal with a Commerce Commission imposed cut to services on the copper lines.

Communications Minister Amy Adams is mulling how to respond to Telecommunications Commissioner Stephen Gale's planned 23 percent price cut for access to Chorus's regulated copper lines, which the network company says will force an overhaul of its capital structure and may threaten the taxpayer subsidised build of national fibre cable infrastructure.

Adams said yesterday the stance by other political parties wasn't unexpected, and that the government has been considering a number of non-legislative measures for some time.

She told Radio New Zealand's Checkpoint programme legislating would have been the government's least preferred option, and that the government is waiting to see EY's analysis to determine what slack Chorus can pick-up, before deciding what steps to take next.

Other options open to the government are changing the terms of Chorus's contract to build the UFB network, which could include shifting the milestones the company would have to meet.

Chorus chief executive Mark Ratcliffe told RNZ's Morning Report programme there were "many, many options" still available, including the ability to vary the company's contract with the Crown for the UFB rollout.

The UFB project was a public-private partnership, making the Crown a "critical" element in whatever approach was determined, said Ratcliffe.

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