Reseller News

ComCom decision sends 'extremely poor signals', says frustrated Chorus

"They signal that real commercial risk may be assumed away with hindsight"
  • Rob O'Neill (New Zealand Reseller News)
  • 03 November, 2020 07:20
David Collins (Chorus)

David Collins (Chorus)

The Commerce Commission has made its final determination of initial losses incurred by Ultrafast Broadband scheme fibre network operators, and Chorus is not happy.

The decisions establish the method by which Chorus’ financial losses from 2011 – 2021 will be valued and the rules for price quality and information disclosure regulation that will apply from 1 January 2022.

Chorus said while the decisions were a very slight improvement on those released on October 13, they "simply do not reflect commercial reality and the true level of cost or risk that was faced in building the UFB network."

"The final views today, and range of changed views from the commission during this process, send extremely poor signals to investors in New Zealand’s infrastructure and future public private partnerships," a notice to the stock exchange authorised by Chorus CFO David Collins said. 

"They signal that real commercial risk may be assumed away with hindsight."

The decisions related to weighted average cost of capital and financing from Crown Infrastructure Partners

Collins notice said Chorus would continue to review the decisions to date in totality and work with the commission through the price quality process to encourage outcomes that will support incentives to continue to invest and innovate for the benefit New Zealand consumers.

The financial loss asset captures the unrecovered returns of Chorus and the local fibre companies (Enable Networks, Northpower and Ultrafast Fibre) during the initial period of operating Ultrafast Broadband (UFB) networks before demand met supply. 

Once a new regulatory regime is implemented in January 2022, the determinations will form part of the regulatory asset base on which fibre providers earn returns.

“As signalled earlier this year, we have decided to adopt a discounted cash flow approach to valuing the financial loss asset, rather than the building blocks method we initially proposed," telecommunications commissioner Tristan Gilbertson said 

"Submitters, including fibre companies and financial analysts, recognised this would help make the calculations easier to understand and therefore provide greater transparency when we set Chorus’ price-quality path and the broader information disclosure regulations next year,” .

ComCom also decided that pre-2011 investments could be included in the discounted cash flow calculation. 

Safeguards have been put in place to address the risk of windfall gains or over-recovery, Gilbertson said.

“Having put these regulatory rules in place, we are now turning our attention to applying them to set the revenue cap and minimum quality standards for Chorus and the information disclosure regime for all fibre providers."

The Government’s UFB initiative aims to achieve fibre-to-the-premises to 87 pe cent of the population by 2022. Rural areas of New Zealand are covered by the separate Rural Broadband Initiative.