Phone line price cut expected
The Commerce Commission will decide what price Chorus can charge for its copper phone lines today, with a price cut expected.
The regulator surprised the industry and sent Chorus' shares tumbling when it published a draft report in May that proposed cutting the average price of unbundled phone lines by about $5 to $19.75 a month.
Deutsche Bank analyst Arie Dekker said if the commission confirmed the pricing that would be very bad for Chorus, but he was not expecting a cut on that scale.
Chorus chief executive Mark Ratcliffe said in August that the issue was causing "huge uncertainty" for the company.
Chairwoman Sue Sheldon said she and other directors had been lobbying hard to prevent the commission slashing the price of its copper-based services but went on to say she had not detected any change in the commission's stance since Stephen Gale replaced Ross Patterson as Telecommunications Commissioner in July.
Dekker said the market would be looking for clarity. "It won't be a terrible outcome for Chorus if they get some modest decreases."
But he did not lightly dismiss the potential impact of even a $2 cut to the average price of unbundled phone lines.
"It all flows through to earnings," he said.
About 100,000 phone lines have been unbundled, but it is understood that if the cut was confirmed at $5 and also flowed through into regulated pricing for unbundled copper low-frequency services (UCLFS) and unbundled bitstream access (UBA) products that are sold to 1.7 million customers, that could knock $100 million off Chorus' annual earnings.
If the commission stuck to the cuts outlined in May while mitigating the impact on Chorus' bundled products, that would open up a wider differential between unbundled and bundled copper services which could encourage more unbundling and potentially reduce telcos' appetite to sell Chorus' ultrafast broadband network.
The market appeared to have priced in some bad news, Dekker said.
"The stock is trading on a price that is close to an 8 per cent net yield on its dividend. That is one of the highest in the market. If there was a lot of certainty in the sustainability of the dividend you would expect the stock to trade on a lower yield than that."