Consumers could feel Chorus cash-crunch

Chorus may squeeze through its $1 billion-cash crunch but at a cost to consumers that will see network faults take longer to fix and long waits for those unable to get broadband.

The company warned last year that it would face a $1b shortfall completing the job of rolling out ultrafast broadband (UFB), because of cuts to regulated copper network pricing that are due to take effect in December.

Reporting a 7 per cent drop in interim profit to $78m yesterday, chief executive Mark Ratcliffe said Chorus could make $400m in economies. Some redundancies were likely in management and support roles, though these would not be a major contributor.

The company is also understood to be close to agreeing the first elements of a deal with Crown Fibre Holdings that would close its funding gap by a further $250m.

The remaining $350m shortfall could be bridged by slashing dividends as Chorus had been paying out $75m in dividends annually, before it suspended pay-outs this year. Ratliffe said it was "probably right" it could squeeze through "if we get on a downhill straight with a good following wind".

However, Forsyth Barr analyst Blair Galpin cautioned it could not be assumed the company would hit its savings target in full.

Chorus' savings would come in part by switching from "proactively" maintaining its copper network to a policy of fixing faults when they arose, Ratcliffe said. "Most people's faults are fixed within a 24-hour period, which is probably about the best anywhere in the world. We may not be able to do it quite as quickly in all cases as we have done."

Chorus would also not extend broadband coverage except through the ultrafast and rural broadband initiatives, he said.

People who are unable to get copper broadband because all the connection points in their local roadside cabinet or exchange are already in use may have to wait for UFB. Ratcliffe said it would be harder to make the case for capacity upgrades. "In some areas we have got plenty of capacity. In other areas we have people waiting for service."

Telecommunications Users Association chief executive Paul Brislen believed there were hundreds of people on broadband waiting-lists but it could be more.

It is understood that tweaks to Chorus' UFB contract could see it receive more regular payments for smaller chunks of work. It may also be allowed to defer laying UFB in more costly areas until towards 2019, doing easier work first. Ratcliffe would not comment.

More of Crown Fibre's loans to Chorus could also be converted to debt-like equity. J P Morgan analyst Paul Brunker said that could be "quite powerful" since credit ratings agencies did not class the equity instruments as debt. "It looks like debt but the ratings agencies don't think it is and they are the people who matter."

Chorus was talking to internet providers about introducing new superior, high-priced copper broadband services, Ratcliffe said.

"It is quite a balancing act. Copper-based products are heavily regulated at the moment and if you were going to try and put something ‘commercial' that sat alongside them, then you would need to make sure that would work for customers and wouldn't cause the regulator any concerns."

There has been speculation Chorus could raise $300m through a rights issue to make its numbers add up.  But Ratcliffe appeared cool.  "The greatest enthusiasm for an equity raising appears to be coming from people who aren't current investors," he noted wryly.  

The company said it was still hopeful of having wholesale copper network prices reviewed upwards by the Commerce Commission or the courts.

Chorus' performance during the half year was likely to be overlooked given the focus on the impact of copper price cuts, he said.  "We are on track with all our major investment programmes." Chorus shares closed down 1 per cent at $1.42.