Chorus profit down NZ$31m due to copper pricing decision

New Zealand telecommunications company Chorus has reported its results for the first half of FY16, with net profit of NZ$33 million recorded -- a sharp decline of 48.4 percent from last year's NZ$64 million.

Chorus also reported revenue of NZ$479 million, down 9.1 percent from the NZ$527 million reported for the same period a year earlier.

Earnings before interest, tax, depreciation, and amortisation (EBITDA) were NZ$275 million, a decrease of 14.33 percent year on year from the previous NZ$321 million reported.

According to CEO Mark Ratcliffe and chairman Patrick Strange, the sharp decline in results had been anticipated due to copper pricing regulation.

"As expected, our financial result was down sharply on the prior period because of lower regulated copper prices set by international benchmarking and charged from 1 December 2014," they said in a joint statement.

"The final aggregate copper pricing determined by the Commerce Commission on 15 December 2015 was an improvement on the prior draft decisions, and aligns closely to entry-level fibre pricing by 2020. However, the revised regulatory pricing only became effective on 16 December 2015.

"The improved pricing outlook, combined with the removal of overhanging regulatory uncertainty, helped the Chorus share price reach a new record high immediately following the commission's pricing determination."

In December, the New Zealand Commerce Commission released its final pricing determination for broadband services being delivered over Chorus' legacy copper network. The final pricing was NZ$50 million lower than that applied when Chorus separated itself from Telecom New Zealand in 2011, though NZ$120 million higher than the original pricing proposed by the Commerce Commission.

Operating expenses sat at NZ$204 million for the six months, a slight decrease of 0.97 percent from NZ$206 million last year, while capital expenditure was NZ$254 million.

Total assets were NZ$3.93 billion, a rise of NZ$154 million over the year. Liabilities and equity also climbed, from NZ$3.78 billion to NZ$3.93 billion.

As of December 31, 2015, Chorus had 1.76 million total fixed-line connections: 1.32 million baseband copper; 6,000 baseband IP; 116,000 unbundled copper local loop; 3,000 sub-loop unbundling and sub-loop extension services; 180,000 naked basic/enhanced unbundled bitstream access (UBA) and naked VDSL services; 11,000 services over copper; and 125,000 fibre services.

This amounted to a decrease of 33,000 fixed-line connections, due mainly to copper lines being removed by a retail service provider.

Chorus had 1.223 million total broadband connections, consisting of 74,000 basic UBA services; 7,000 naked basic UBA; 763,000 enhanced UBA; 128,000 naked enhanced UBA; 94,000 VDSL; 45,000 naked VDSL; and 112,000 fibre services.

Chorus also provided an update on the rollout of the New Zealand government's Ultra-Fast Broadband (UFB) initiative, saying it has completed seven of its 24 rollout areas.

"We are almost halfway through the UFB rollout, and continue to activate our planned network areas on schedule. Build work had been finished for about 400,000 premises across our UFB areas at 31 December, meaning approximately 539,000 consumers could connect to our ultra-fast broadband."

Chorus spent NZ$90 million on rolling out the UFB during the six-month period, with cost per premises passed sitting at NZ$1,643.

The UFB was originally planned to provide minimum speeds of 100Mbps up/50Mbps down to 75 percent of the population.

It has since been increased to reach 80 percent of the population, with the remaining 20 percent set to be connected to wireless mobile broadband under the Rural Broadband Initiative (RBI), which will provide download speeds of 50Mbps by 2020.

By the end of calendar 2019, 97.8 percent of the NZ population will be covered by either the UFB or the RBI.

Chorus said the RBI amounted to capex spend of NZ$16 million for the half year, and should be finished by the end of June 2016. Total capex spend is forecast to be between NZ$280 and NZ$295 million. Uptake within the footprint is currently sitting at around 85 percent.

"Demand for fibre continues to be extremely high, and addressing these challenges remains mine and Chorus' number one priority," Ratcliffe said in December last year.

"Meaningful progress has been made during the last few months, both within Chorus and in collaboration with our industry partners. I would like to acknowledge the highly collaborative way that our customers have approached working through changes in the end-to-end experience."

By comparison, Australia's National Broadband Network (NBN), which moved away from an all-fibre rollout following the Coalition's election at the end of 2013, is forecast to reach 100 percent of Australian premises by 2020, guaranteeing minimum speeds of just 25Mbps down/5Mbps up.

The NBN proposes to cover 20 percent of the population with fibre to the premises; 38 percent with fibre to the node and fibre to the building; 34 percent with hybrid fibre-coaxial; 5 percent with fixed wireless; and 3 percent with satellite services.

Chorus is expecting a positive full-year result at the end of June, with the final copper pricing regulation decision expected to drive profits up again.

New Zealand rival telco Spark also reported its financial results for the half year earlier this week, recording net earnings of NZ$158 million on revenues of NZ$1.7 billion off the back of increasing mobile and broadband users.

Operating revenue for the six-month period was NZ$1.723 billion, a decline of 4.1 percent year on year from last year's NZ$1.797 billion thanks to regulatory changes whereby Chorus imposes access charges for a majority of Spark Wholesale customers.