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Chorus profit stable at NZ$91m on copper pricing decision

Chorus has reported a net profit of NZ$91 million on revenue of NZ$1 billion and EBITDA of NZ$594 million after copper connections fell as fibre-based broadband rose.
Written by Corinne Reichert, Contributor

New Zealand fixed-line telecommunications provider Chorus has announced its full-year financial results for 2015-16, reporting earnings before interest, tax, depreciation, and amortisation (EBITDA) of NZ$594 million, down by NZ$8 million due to the regulator's copper pricing decision in December.

Net profit remained stable, at NZ$91 million, on revenue of NZ$1.008 billion, which was up slightly from the NZ$1.006 billion reported last year.

Operating expenditure increased by NZ$10 million to reach NZ$414 million over the year, while capital expenditure was down by NZ$4 million to NZ$593 million.

According to CEO Mark Ratcliffe -- who also announced that he would be stepping down from his position effective from the middle of next year -- the decline in EBITDA was due to the Commerce Commission's copper pricing regulation.

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.

"The combination of greater regulatory clarity and operating momentum has allowed Chorus to return to managing its business for long-term shareholder value. EBITDA of NZ$594 million is in the top half of guidance, reflecting continued good cost management across the business, and dividends were resumed in February 2016," Ratcliffe said.

"While the final copper pricing outcome was an improvement on the benchmarked pricing, it has not restored our financial position to demerger levels, and the regulatory framework that may apply from 2020 remains far from clear. We are therefore continuing to take a measured approach to ongoing investment."

A breakdown of revenue saw basic copper services contribute NZ$489 million, NZ$2 million less than last year; enhanced copper contribute NZ$242 million, down from NZ$268 million; and fibre contribute NZ$133 million, up by 35.7 percent year on year from NZ$98 million. Value Added Network Services, Field Services, and Infrastructure were all down by NZ$1 million to contribute NZ$35 million, NZ$83 million, and NZ$20 million, respectively.

Chorus' fixed-line connections decreased by 67,000 during FY16, to a total of 1.727 million: 1.221 million baseband copper services; 197,000 naked copper unbundled bitstream access (UBA) and VDSL services; 108,000 unbundled copper local loop (UCLL) services; 2,000 sub-loop UCLL (SLU) and sub-loop extension services (SLES); 9,000 baseband IP services; 10,000 data services over copper; and 180,000 fibre services.

Broadband connections, however, were up by 19,000, to total 1.226 million as of June 30. These were made up of 900,000 UBA services; 159,000 VDSL services; and 167,000 fibre services.

Chorus stated that the New Zealand government's Ultra-Fast Broadband (UFB) project is now 57 percent complete, while the Rural Broadband Initiative (RBI) is 100 percent complete.

(Image: Screenshot by Corinne Reichert/ZDNet)

The UFB now has a cost per premises (CPP) passed of NZ$1,689, and a CPP connected of NZ$1,009.

The RBI enhanced and extended fixed-line coverage to approximately 110,000 premises for NZ$282 million, and has seen an uptake of 88 percent. Chorus said it is now "awaiting RBI2 details" from the federal government.

Ratcliffe said Chorus is also looking to further regulatory decisions about the non-price terms of UBA, announced in April, and the possible amendment of the domestic backhaul market regulatory framework to protect downstream competition in the face of emerging technologies and new nationwide networks, announced earlier this month.

"A regulatory framework that recognises broadband as an essential utility is necessary if New Zealand is to encourage ongoing improvement and extension of its broadband capability," Ratcliffe said.

"We welcome the government's current review of the regulatory framework for communications services and believe it is an opportunity to align and deliver on the interests of customers and investors. A stable transition in pricing at 2020 is central to this and could help New Zealand achieve better broadband coverage well beyond the government's current goals."

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