Capital share rise on review deadline

TOM PULLAR-STRECKER
Last updated 14:14 07/02/2014
100% COMMITTED: Chorus Chief Executive Mark Ratcliffe.
Fairfax NZ
CAPITAL RAISING TIPPED: Chorus Chief Executive Mark Ratcliffe.

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Chorus shares have risen almost 10 per cent after the Commerce Commission announced it expected to wrap up a price review by December.

The commission expects to complete the review of the price Chorus should be allowed to charge for copper broadband connections this year.

However, a commission spokesman confirmed the competition watchdog had not yet set an indicative date by which it hoped to complete a separate review of the price Chorus should be allowed to charge for its copper phone lines.

It has previously indicated the phone line price review would be more complex.

A new wholesale price of $10.92-a-month for broadband connections is due to come into effect in December, and was based on benchmarking by the commission of prices charged overseas.

But last year Chorus asked the commission to carry out a "full price principle" (FPP) review by modelling Chorus' actual costs in providing the service, in the hope of securing an increase.

In an apparent victory for internet providers, the commission said it would base its decision on what Chorus should be able to charge for copper broadband connections in part by considering whether an equivalent service could be provided more cheaply using the fixed-wireless technology. Vodafone has been contracted to provide this technology to some parts of the country under the Rural Broadband Initiative.

It is the less-complex of two FPP reviews the commission is carrying out into Chorus' wholesale prices for copper-based services.

The commission warned last year that phone line cost reviews had typically taken overseas competition authorities several years to complete.

Meanwhile, analyst J P Morgan has forecast Chorus will seek to raise $300 million from investors through a rights issue in the first half of this year.

A Chorus spokesman said the company did not expect to be able to comment on the forecast.

J P Morgan said it expected Chorus might issue three shares for every existing four, at about a 25 per cent discount to their original market price.

In a research note entitled "let's face the music", J P Morgan said it expected Chorus to cancel any dividends for the first half of the year and to pay an annual dividend of only about 5 cents a share between 2015 and 2022. Chorus had been one of the highest-yielding stocks on the NZX with an annual payout of 25.5 cents before it was hit by regulatory setbacks last year.

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J P Morgan forecast Chorus would report a 1 per cent rise in revenues and a 10 per cent drop in net profit when it released its interim results on February 24. But the difficulties will come for the company from December when steeps cuts in the price it is allowed to charge for access to its copper network are due to kick in.

Chorus shares were up 13 cents at $1.51 in lunchtime trading.

- © Fairfax NZ News

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