7 Nov 2013

Chorus shares fall after commission price ruling

6:13 am on 7 November 2013

Shares in Chorus fell more than 8% on Tuesday after the Commerce Commission made a final ruling on the wholesale price it says the telephone lines company should be allowed to charge for broadband over copper wires.

The Commerce Commission ruled the wholesale price Chorus can charge for broadband over copper wires must nearly halve by December next year.

The commission's final price is a near $2 improvement on its draft determination last December but at $34.44 for both phone and broadband over copper wires is still $3.06 below the bottom of the Government's proposed range. The current price for both phone and broadband services is $44.98.

Chorus said on Tuesday the commission's price ruling would cost it about $1 billion by 2020.

The company's shares fell as much as 22 cents to $2.41 before recovering slightly to close at $2.45 on Tuesday.

Chorus is building about 70% of the Government-subsidised ultra fast broadband fibre network and argues if the price of broadband over copper wires is too low, consumers will be less inclined to switch to the faster service.

Prime Minister John Key says the Government remains firmly committed to the rollout of ultra-fast broadband.

Mr Key says all options are on the table in response to the commission's decision on pricing, including a government subsidy in return for an equity stake in Chorus. Another possibility is for the Government to legislate and override the price set by the commission.

An analyst at Craigs Investment Partners, Arie Dekker, says the ball now is clearly in the Government's court.

"It clearly depends politically in terms of their appetite for intervening and what they take out of that regulatory review and the industry submissions they got."

Slingshot chief executive, Mark Callander, says the Government will distort the market if it intervenes, and there would be dangerous consequences in overriding the regulator.

"You're in very dangerous grounds, not only in our industry but any industry, when a government looks to intervene like they're doing. It's really, really important that you have a regulator in monopoly industries.

The research manager at IDC New Zealand, Peter Wise, says Chorus stands to lose 80% of its profit which could slow its attempts to build the fiber optic network for ultra fast broadband.

But business journalist Rod Oram says decreasing the copper prices could get more people hooked on broadband internet, which would boost the uptake of fibre.