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UPDATE 1-NZ plans broadband price cut for Chorus; shares slide
December 3, 2012 / 3:50 AM / 5 years ago

UPDATE 1-NZ plans broadband price cut for Chorus; shares slide

* NZ regulator plans 28 pct cut to broadband prices in 2014

* Chorus sees NZ$160 mln earnings cut if plan goes through

* Shares tumble nearly 13 pct, lowest in nearly a year (Recasts, adds Chorus statement)

By Naomi Tajitsu

WELLINGTON, Dec 3 (Reuters) - New Zealand regulators sought to loosen Chorus Ltd’s monopoly on the country’s broadband network on Monday with a proposal for steep price cuts, sparking a profit warning from the company and sending its shares tumbling to a near one-year low.

Chorus said it could lose up to NZ$160 million ($130 million) in 2014 EBITDA earnings if ordered to slash network charges prices by nearly 28 percent in two years’ time as proposed.

The proposal comes on top of a decision by the competition regulator to cut the price telecommunication companies pay to access Chorus’ copper wire network, its main profit earner.

“Management expects that the collective impact of these two changes ... could require Chorus to fundamentally rethink its business model, capital structure and approach to dividends,” Chorus said in a statement.

Chorus shares almost 13 percent to a near one-year low of NZ$2.96 in reaction to the announcement.

The Telecommunications Commissioner’s draft proposal called for the price for unbundled bitstream access (UBA) - the cost of access to the broadband network - to be slashed to NZ$32.45 a month in two years’ time, from the current NZ$44.98.

New Zealand’s government said it would review the draft, and a final decision is expected in June 2013.

Market participants said the regulator may scale back the size of the price cut to access the broadband network if the government makes such a recommendation, but that the uncertainty in the meantime could keep Chorus’s share price weak.

“I would be amazed if there wasn’t a pullback from the draft decision but the extent of it is uncertain,” said Brian Gaynor, director of Milford Asset Management.

“The shares aren’t worth it at the moment, to be honest. I’d stay back and see what happens.”

While the price cut for the copper wire network was smaller than expected, Chorus said it would significantly reduce the take-up of an ultra fast-broadband network planned by the government due to cost considerations. Chorus is set to own and operate around three-quarters of the ultra-fast broadband network.

The Telecommunications Commissioner said the wholesale price for telecoms companies to connect to Chorus’s established copper lines would fall 3.9 percent to an average of NZ$23.52, starting on Dec. 1, 2014. That compares with a May proposal for a price of NZ$19.75.

Chorus was created in December 2011, split off from the country’s dominant telecom firm Telecom Corp to run the network infrastructure.

It earns around three quarters of its revenue from selling access to the unbundled copper local loop - the traditional network connecting consumers to telephone exchanges, through which telecommunications companies offer phone and Internet services. ($1 = 1.2185 New Zealand dollars) (Additional reporting by Gyles Beckford; Editing by Dale Hudson and Edwina Gibbs)

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