Government warned over Chorus

TOM PULLAR-STRECKER
Last updated 13:53 05/12/2013

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The Government has signalled it intends to provide some help to network provider Chorus, but the shape of that assistance is unclear.

Communications Minister Amy Adams said she did not expect any assistance would extend to offering the beleaguered firm more money to complete its contracts with the Crown to roll-out ultrafast broadband (UFB) and to improve rural broadband.

The prospect of the Government coming to Chorus' aid firmed up after ministers received an oral briefing from Ernst & Young Australia this morning.

The consulting firm told the Government Chorus was "at risk" of being unable to fulfil the contracts in the wake of a Commerce Commission ruling that will slash the price it can charge for access to its copper network from next December.

Adams issued an invitation to Chorus - which the company has accepted - to talk to Crown Fibre Holdings, which is managing the Government's investment in UFB. But she said "at this stage" she did not envisage Crown Fibre would be allowed to step outside its fiscal envelope. Chorus would also not be allowed to trim back or delay the UFB roll-out, she said.

The support Chorus received could include changes to "the timing of payments, the structure of payments and some of the specifics of the UFB build that don't affect service parameters or timeframes", she said.

Investors have reacted with disappointment, sending Chorus shares down 2.1 per cent to a record low of $1.40.

The Government capped its investment in UFB at $1.35 billion at the outset of the initiative and agreed to pay Chorus what was in effect $929 million in "soft loans" in return for building a 69 per cent share of the network.

But because payments to Chorus and other UFB network-builders were to be spread out over many years, Economic Development Minister Steven Joyce said in 2011 that the "real cost" of the overall project to taxpayers amounted to only $600m.

Labour's associate communications spokeswoman Clare Curran said the National Party was "running a seat-of-the-pants government" by renegotiating Chorus' contract on the basis of a verbal briefing.

"Ernst & Young appears to be a figleaf for another round of National's corporate welfare," she said.

"That is not acceptable. New Zealanders must see the full details in black and white so they can judge for themselves whether Chorus can fulfil the roll-out under the contract terms."

The Government commissioned Ernst & Young to investigate Chorus' financial circumstances in the wake of a ruling from the Commerce Commission that will slash the price Chorus can charges for access to its copper network from next December.

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Adams said: "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 RBI [rural broadband initiative] contractual commitments, after taking into account a wide range of actions Chorus can take itself.

"While the quantum of the shortfall is still being finalised and will be outlined in its final report, Ernst & Young has indicated it is unlikely to alter the high-level findings, and that the Government can act with confidence on the information Ernst & Young has supplied."

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

Chorus spokesman Ian Bonnar said earlier this week that the answer to whether Chorus could complete the contracts without going broke was "not a simple yes or no".

Adams said the Government expected to know the outcome of the discussions between CFH and Chorus "in a few months' time" and expected Chorus to meet "a significant part of the shortfall".

Forsyth Barr analyst Blair Galpin said that meant Chorus probably faced several more months of uncertainty.

Ernst & Young's briefing appeared to confirm Chorus' position that "something needs to happen" and the company needed to be given some leeway, he said.

But observers were little the wiser as Ernst & Young had not specified the size of Chorus' funding gap.

- © Fairfax NZ News

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