Chorus posts $171m profit despite regulatory pressure

Regulatory pressure over unbundled bitstream access (UBA) pricing and higher than expected ultrafast broadband (UFB) build costs didn't stop telecommunications network operator Chorus from turning in a small gain in its first year as a standalone business.

However, the company warned next year’s result will be “flat to weaker”.

Net profit after tax was $171 million for the 2013 financial year. This compares with $102 million in 2012, which was for a seven month year following the company’s demerger from Telecom NZ. Operating revenue came in at a shade over $1 billion while the company’s earnings before interest, tax, depreciation and amortisation (EBITDA) was $663 million. On an annual basis revenue was up 3.5 percent.

A good result

Chief executive Mark Ratcliffe described the numbers as ”a good operating result”.

On the plus side he noted both the UFB and RBI programmes are slightly ahead of target, the year saw a small increase in the number of access lines and a six percent increase in copper broadband connections. Meanwhile the company continues to face significant capital expenditure demands and there’s a regulatory risk.

The regulatory risk centers on the Commerce Commission's plans to cut UBA prices, which Chorus has warned could wipe up to $160 million from annual revenues—potentially turning profitable years like this into losses.

Chorus said the year’s figure was dragged down by high capital expenditure on the UFB and Rural Broadband Initiative (RBI). In 2013 the UFB cost the company $2,935 per premise passed, but the number is expected to go higher to an estimated $3,200 in 2014 thanks to what Ratcliffe calls “a challenging mix of build areas”. This includes Wellington CBD and Ponsonby.

Extraordinary capital investment

He said: “Spending almost two-thirds of revenues on capital investment is an extraordinary amount for any company”.

Ratcliffe is happy with the build. He said: ”We are making rapid progress in building a fibre future for New Zealand with more than 3,000 kilometres of fibre cabling deployed in just 12 months, taking our total fibre network beyond 30,000 kilometres”.

On June 30, the UFB network was within reach of 205,500 end-users, or 153,000 premises. At the same time 51,200 rural end-users were within reach of better broadband.

Chorus says it expects the UFB network will cost between $1.7 billion and $1.9 billion by the time it is complete. It said the RBI bill is expected to be between $280 million and $295 million.