Chorus could cut costs by underinvesting in network: Report

Summary:New Zealand telecommunications wholesaler Chorus has been presented with a range of options for cutting costs in a report prepared by Ernst & Young.

Cost-saving options for embattled New Zealand telecommunications infrastructure provider Chorus include allowing the quality of its service to drop by underinvesting in maintenance and upgrades on its existing copper-wire networks, according to the report into its future by Ernst & Young Australia.

The report, released on Saturday afternoon by New Zealand Communications Minister Amy Adams, suggests that close to half the NZ$1 billion (AU$933.58 million) that Chorus needs to find to finance the rollout of most of the country's Ultra-Fast Broadband (UFB) network can come from revenue increases and cost savings.

The report contains almost no specific proposals for where those NZ$400 million to NZ$450 million of savings and improved revenues could occur. But the fact that the existing copper wire network is subject to regulated price control suggests that many of the initiatives would come at a cost to the quality of service on the current network.

The Ernst & Young report lists a range of risks to the potential savings and revenue uplift. They include lowering service levels to retail service providers, allowing network fault rates to increase as the company implements a reactive rather than proactive maintenance strategy, increasing the time to remedy network faults, and potentially increasing the number of businesses or consumers who cannot connect to the network.

Combined with a 50 percent reduction in forecast dividends, a higher allowable debt ceiling, and raising capital or debt of between NZ$200 million and NZ$250 million, the NZ$1 billion shortfall could be bridged, the report says.

Adams ordered the report after a Commerce Commission decision required an unexpectedly large cut in regulated prices for unbundled bitstream access from 2015, causing Chorus to warn that its capacity to roll out UFB in 24 of the country's 33 rollout areas could be jeopardised.

Chorus chief executive Mark Ratcliffe says the trade-offs proposed by the report would be "carefully weighed to protect consumers".

Topics: New Zealand, Government, Telcos

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