Chorus expected to negotiate with Crown Fibre Holdings

Ernst & Young Australia, charged with independently reviewing network operator Chorus's financial position, has told the New Zealand Government the company is at significant risk of not being able to complete its share of the country's new Ultra-fast Broadband (UFB) network.

Communications and Information Technology Minister Amy Adams said today the Government received a verbal briefing from Ernst & Young on its high level findings.

The firm found that if regulated reductions in the wholesale price of copper broadband services are introduced the contract was at risk.

Chorus shares were largely unmoved after trading for three days at all time lows of around NZ$1.45 on the New Zealand Stock Exchange. Chorus shares were trading as high as NZ$3.70 early last year.

“The preliminary conclusion from Ernst & Young is that copper price changes will have a significant impact on Chorus’ financial position and that absent further action, Chorus is at risk of not meeting its UFB and Rural Broadband Initiative (RBI) contractual commitments, after taking into account a wide range of actions Chorus can take itself,” Adams said.

As a result and because the Government remains committed to the UFB roll-out, Adams said the Government expects Chorus to approach state-owned Crown Fibre Holdings (CFH), which leads the UFB and RBI programmes, to discuss "specific provisions within the UFB contract".

“The Government supports CFH entering into discussions with Chorus to help manage this issue," Adams said.

“The Government’s UFB initiative has a budget of $1.35 billion and CFH is required to act within this fiscal envelope. The Government expects Chorus to meet a significant part of the shortfall.

“The Government expects to know the outcome of the discussions between CFH and Chorus in a few months’ time.”

Last month, regulator the Commerce Commission released the final price Chorus can charge internet service providers for services over its legacy copper network, setting it 23% lower than before at $34.44. The cuts apply from December 2014.

Ernst & Young told the Government that while the quantum of the shortfall is still being finalised, the Government can act with confidence on the information supplied verbally.

Ernst & Young’s final report is due on 12 December.