Chorus plugs $1 billion broadband funding gap with roll-out changes

Crown Fibre Holdings, the government entity managing the rollout of Ultrafast Broadband in New Zealand, has allowed changes to be made to the fibre network plan to help plug a NZ$1 billion funding gap at its major network partner, Chorus.

Chorus, which has already slashed its costs internally, said the changes ensure the roll-out is not just more cost effective, but provides better outcomes and eliminates some barriers to take-up.

Chorus said the changes do not require any additional funding from CFH, change network specifications or change the contractual obligation to pass all premises in Chorus’ area before December 2019. Nor do they change the network requirements.

However, ginger group the Telecommunications Users Association (TUANZ) said the changes would not make a huge difference to funding and in some ways exacerbate existing problems, particularly with cuts to Chorus's UFB marketing budget.

CFH has allowed increased deployment flexibility in how the rollout will be phased and how it is being funded.

The agreed completion date for each area does not change, but Chorus now has greater flexibility in how it phases the rollout within those timeframes. Requirements for a minimum annual build and for Ultrafast Broadband (UFB) to pass 100% of schools and hospitals, and at least 90% of business premises by December 2015 will be met, the company said.

However, Chorus has greater flexibility to manage the rollout in conjunction with local councils and other utilities to optimise cost.

CFH has also agreed to subscribe for a portion of the CFH securities monthly as work is completed. This better aligns receipt of government funding to Chorus’ outgoings.

The balance will be paid on completion of stages and user acceptance testing.

Chorus will also have greater flexibility in the deployment of UFB in areas where it already has fibre, deferring UFB in these areas to later in the programme. This relates to around 12,000 premises.

Chorus will be allowed to deliver UFB in multi-dwelling units with a shared communications room using Fibre to the Premises (FTTP) and in-building reticulation where Cat 5e cabling already exists.

This will reduce costs, including costs that may be charged to the building owner, and potentially eliminate some consent requirements. Chorus said it should also lift UFB uptake.

TUANZ chief executive Paul Brislen welcomed this change, saying it was common sense to use existing cabling where it was available.

Developers will be charged for reticulation of greenfields developments as Chorus does already in the non-UFB areas of the country to a maximum of $900 per premises. 

Chorus has also agreed to increase its "non-standard installation fund" by $8 milllion, providing the industry with greater certainty regarding installation costs and giving them more confidence when marketing fibre services.

However, Chorus will reduce its own fibre marketing spend from $5m a year to $2.5 million, focusing its on direct tangible marketing for the network.

Brislen said too little is being done to market the benefits of UFB to consumers and these cuts would make that worse. Chorus is relying on retailers to market fibre when in fact they will only market their own products, not the benefits of fibre overall.

When the digital TV switchover occurred last year, government spent $13 million on an ad campaign. UFB requires more than that, he said.

Chorus and CFH have been working together, as requested by Communications and Information Technology Minister Amy Adams in December 2013, to deal with a looming funding shortfall that Chorus warned would damage its profitability.

The rollout costs have proved more expensive than originally anticipated. On top of that, regulator the Commerce Commission decided to cut the cost of traditional copper broadband services, Chorus's main revenue source, from the end of this year.

That decision, which saw Chorus' credit rating lowered, is now being reviewed

“This initial set of initiatives will help Chorus to deliver UFB faster, smoother and more cost effectively,” said Andrew Carroll, Chorus CFO. “While Chorus is firmly focused on managing its costs, both parties have worked on the basis that we need to find innovative ways to deliver better outcomes, and that would require a degree of give and take.

“We all want UFB to be an enormous success and these improvements are an important step towards that."

Carroll said while some of the changes have been accelerated by the funding gap Chorus faces, several of them were already under discussion.

Brislen said the changes were "more about shuffling the cards rather than dealing a new hand".

"There's no maasive upside for users but it might be good for Chorus," he said.

Brislen said he had some areas of concern, including that Chorus might be able to use existing fibre at very little cost while still charging CFH - and the taxpayer - for it. This could also allow Chorus to "stomp all over" its competition in some regions, such as fibre provider CityLink in Wellington.