Concern at Chorus UFB cost overrun

Analysts are nervous that a $300 million blowout at Chorus may prove the first of a number of cost overruns that could plague the multibillion-dollar ultrafast broadband initiative.

Chorus' shares fell 3.3 per cent yesterday to $2.94 after it forecast it would need to spend about $300m more than it had originally expected to build its 70 per cent share of the UFB network. That was after assuming it could save money by stringing up more of the network on power poles, rather than burying all that it could.

Chief executive Mark Ratcliffe said the "extreme" cost of civil works in a small number of trouble-spots, such as the Wellington CBD, Queenstown and Auckland's Ponsonby, had forced Chorus to raise the estimated cost of laying fibre to the street from between $1.4 billion and $1.6b, to $1.7b-$1.9b.

"We always knew we would have difficult areas but not to the extent we have found," he said.

The estimate does not include the "potential $1 billion" cost of connecting homes and businesses to the communal network.

One analyst said that while he hoped Chorus would now have a good handle on the cost of laying fibre to the street, connections costs were the next area of concern.

Macquarie Securities analyst Andrew Levy said Chorus had also flagged an additional $50m to $100m spend on information technology systems over the next four years.

Deutsche Bank analyst Arie Dekker said the cost warning had clearly overshadowed Chorus' "reasonable" interim net profit of $84m, also announced yesterday, and it might be while before its UFB connection costs became clear.

Ratcliffe refused to say how much Chorus had paid to connect premises to the communal network so far, explaining it had only hooked up 1400 premises.

"You really do need ‘volume' to drive that [cost] down. We don't have enough people working all day, every day, on the same job to get the kind of efficiencies you'd want there."

Chorus had always planned to put 15 per cent of the communal network overhead and might now increase that to about 20 per cent.

He said Chorus' preference was still to bury fibre where economic.

"We believe that's generally what communities want as well." Fairfax NZ