Chorus says regulator's decision on UFB sends 'extremely poor signals'

Tuesday, 3 November 2020

Lower compensation for Chorus should translate into downward pressure on prices for fibre broadband down the track.

Chorus says a Commerce Commission ruling means its shareholders won’t be properly compensated for the risks they took financing the construction of the lion’s share of the ultrafast broadband network.

The commission finalised a financial calculation on Tuesday that will help determine how much Chorus and other UFB network builders will be able to charge for UFB from 2022 onwards.

Lower compensation for Chorus would be expected to flow through to cheaper broadband prices, but the commission will need to go through more steps before determining what wholesale prices after 2022 should be.

Chorus said in an NZX statement that the commission’s decisions “simply do not reflect commercial reality and the true level of cost or risk that was faced in building the UFB network”.

The Commerce Commission’s ruling means Chorus shareholders won’t be properly compensated for past “risks”, Chorus says.

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“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,” it said.

The financial calculation involved valuing the losses that UFB network builders incurred in the early days of the network’s construction, before the take-up of UFB grew.

Chorus shares have nearly trebled in value over the past five years, closing at $8.33 on Monday.

They opened down 2c on Tuesday in the wake of the commission’s statement.

Spokesman Steve Pettigrew said its investors did “take a big risk building a network that nobody knew if they wanted or not”.

The regulator’s ruling was “somewhat counter to the spirit of the agreement at the time”, he said.

Pettigrew brushed off the suggestion the regulator’s decision should reflect Chorus passing on many of the risks of building its UFB network to vulnerable subcontractors, saying he was “not going to go there”.

“As soon as Chorus was involved in that we dealt with that and continue to carrying on dealing with that,” he said.

Last year, a report commissioned by Chorus acknowledged that the company had failed to sufficiently oversee the subcontracting model of its two prime contractors responsible for connecting homes to UFB, whose own practices were 'not sophisticated enough' to protect those workers from exploitation.

The report by former State Services deputy commissioner Doug Martin said evidence was presented to Chorus' board in 2016 that “with hindsight' should have the alerted it to the risks.

The report also revealed that more than half of the 1600 workers then hooking up homes to UFB for Chorus were migrants on temporary work visas, and that more than 70 per cent had English as a second language.

Chorus commissioned the report after the Labour Inspectorate reported “widespread” breaches of employment law by subcontracting companies rolling out the UFB network for Chorus.

Telecommunications commissioner Tristan Gilbertson said the commission’s attention would now turn to setting the revenue cap and minimum quality standards that would apply to the sale of UFB.