UFB build: Higher costs for longer
Chorus chief executive Mark Ratcliffe has reassured nervous investors that the company can contain the cost of building its share of the ultrafast broadband network to about $2.6 billion.
Based on the average costs Chorus has incurred to date laying fibre to the street and hooking up premises, its share of the network would cost the company $3.8b and the entire UFB scheme would cost $5.6b.
But Ratcliffe said its costs would drop in future years as the focus of the roll-out switched from central business districts to suburbs and as contractors gained more experience wiring up homes and businesses.
There are now 5197 contractors and staff working for Chorus, many of whom are directly involved in building the UFB network.
Chorus yesterday reported a net profit of $171 million. While that was about $12m higher than analysts had expected, its shares slipped 1 per cent to $2.94 as investors fretted about its capital expenditure and the potential for future blowouts.
First NZ Capital analyst Greg Main said that although Chorus had indicated its UFB costs would fall within their expected envelope, the longer that average costs stayed higher, the greater the risks. "It raises the issue of whether they can execute to bring those numbers back."
Labour Party communications spokeswoman Clare Curran accused Chorus of "sleight of hand" for posting a larger-than-expected profit while also lobbying for government intervention intended to prevent steep cuts in the wholesale price Chorus can charge for copper phone lines and broadband products.
Although most eyes were on Chorus' costs, Ratcliffe said that in about a month the company would announce details of a new, higher-speed residential UFB product that would offer download speeds of 200 megabits-per-second, complementing its existing 30Mbps, 60Mbps and 100Mbps services.
Chorus has contracted with the Government to lay fibre in the streets past 830,000 homes and businesses by December 2019 and must hook up those customers to the communal network on request.
So far it has built about 18 per cent of the communal network and connected about 0.5 per cent of customers.
The average cost of laying UFB along the street right past homes and businesses came in at $2935 per premises during the year to June, while the cost of hooking up "standard" homes and businesses - which Chorus must connect to that network free-of-charge - averaged $1600. The cost of connecting those 14 per cent of "non-standard" homes that had difficult access was $2250 each.
Ratcliffe expected Chorus' communal-build costs would perhaps increase to between $2900 and $3200 per premises this financial year, "reflecting the challenging mix of build areas".