WELLINGTON, Dec 5 (Reuters) - New Zealand telecommunications network operator Chorus Ltd faces a significant earnings hit from proposed price controls, which might threaten its ability to build a government sponsored national ultrafast broadband network, a government minister said on Thursday.
A regulator has said Chorus should cut the price to connect to its copper fixed line broadband network by about 50 percent from the end of next year, which the company has said would knock a NZ$1 billion ($818.25 million) hole in its earnings by 2020.
It said the price cut would also jeopardise its building of most of the ultrafast fibre broadband network (UFB) (RBI), prompting the government to order an independent look into Chorus’s finances.
“The preliminary conclusion from Ernst & Young is that copper price changes will have a significant impact on Chorus’ financial position and that absent further action, Chorus is at risk of not meeting its UFB and RBI contractual commitments, after taking into account a wide range of actions Chorus can take itself,” Communications Minister Amy Adams said in a statement.
Chorus shares, which last traded up 1 percent at NZ$1.455, have fallen 44 percent since the regulator’s decision was confirmed in early November. The company is going to court to try to overturn the decision.
Adams said there was no figure on how much Chorus’s earnings would suffer, but the company was expected to meet a “significant part of the shortfall.”
Chorus has withdrawn guidance on future dividend payouts in the current uncertainty.
Adams said the government agency handling the UFB network rollout is expected to discuss with Chorus on how to “manage the issue”, which would likely take several months.
$1 = 1.2221 New Zealand dollars Gyles Beckford