Chorus posts profit despite NBN hit

New Zealand's structurally separated telecommunications infrastructure operator Chorus has delivered a profit, despite regulatory pressure and large capital expenditure due to participation in the government-sponsored Ultra-Fast Broadband (UFB) project.

Chorus chief executive Mark Ratcliffe. Source: Chorus

For the full year 2013, Chorus delivered a net profit after tax of NZ$171 million on earnings before income tax of NZ$663 million (A$148 and A$573.5 million respectively). The results span the first twelve-month period after Chorus was demerged from Telecom New Zealand.

High capital expenditure incurred by Chorus for the UFB project and the Rural Broadband Initiative of NZ$579 million was a major drag on last year's earnings.

Broken down, the cost for Chorus per premise passed was NZ$2,935 (A$2,535) on average but this is budgeted to go as high as $3,200 (A$2,765) for the next year as a "challenging mix of build areas" are planned for that period.

Chief executive Mark Ratcliffe said achieving ongoing cost efficiency and deployment timeliness for the UFB was a key a focus for the company.

"Spending almost two-thirds of revenues on capital investment is an extraordinary amount for any company," he said.

Chorus revealed work on the UFB project that the company won the majority of deployment contracts for was running ahead of schedule, with 3,000 kilometres of fibre deployed in twelve months.

At the end of June, Chorus said it had passed 153,000 premises for the UFB, enabling 205,500 end users able to connect to the network. In total, the UFB reached 229,633 premises as of June 30 this year, with 301,238 users able to connect to it, according to figures from communications minister Amy Adams.

Of those, 9,984 users had connected to the UFB, an uptake of 3.3 per cent. All in all, Chorus said its part of the UFB was now 18 percent complete. The company expects the network build to be finished by 2019.

Weaker earnings are expected for the full year 2014, Chorus said, due to higher capital expenditure for the UFB and what Ratcliffe called "regulatory headwinds" reducing the access price for the company's existing copper network.

Ratcliffe said Chorus was pleased with a regulatory review set in motion after Communications Minister Adams and Prime Minister John Key rejected the decision by independent telecommunications commissioner Dr Stephen Gale to sharply reduce copper access pricing. However, he still expected the outcome of it to cause annual earnings to drop between NZ$20 to NZ$100 million (A$17.3 to A$86.5 million).

Ratcliffe warned any changes to the regulated pricing for copper would have a strong effect on Chorus' revenues and also, the industry's willingness to migrate to fibre.

Copper lines continued to be an important business for Chorus.

The company increased the number of fixed-line copper connections in the last financial year by 8,000 for a total of 1.784 million. It said 64,000 copper broadband connections were added in that period, but fibre showed a 90 per cent growth rate and had reached 19,000 connections for the company.