Chorus raises forecast UFB cost by $300m

Contractors laying fibre optic cable as part of the nationwide ultra fast broadband rollout. Photo / supplied by Chorus

Shares in Chorus dropped 2 per cent after the telecommunications network operator spun out of Telecom signalled the cost of building a nationwide ultrafast broadband network has increased by some $300 million.

The Wellington-based company expects the total UFB build to be between $1.7 billion and $1.9 billion, from a previous range of $1.4 billion and $1.6 billion. It flagged capital expenditure of $640 million to $690 million this financial year from previous guidance of $560 million to $610 million. The shares fell 6 cents to $2.98.

Chief executive Mark Ratcliffe told an investors' briefing the company is focused on bringing down the building costs, which have got away on the company in about 10 percent of the network's areas. Chorus has had early talks with Crown Fibre Holdings about pushing out some of its year three requirements into year four.

"It's clearly going to be expensive in year three to four if we have to meet those objectives," he said.

Ratcliffe said he was confident with the new UFB forecast, which is based on 18 months of actual building experience.

"We know what's going to be expensive if we build them in the same way next year," he said.

See the Chorus investor presentation here.

Chorus said the rate of its UFB rollout has been consistent with expectations, with building work completed for 88,590 premises as at December 31, and it's on target to pass 149,00 premises by the end of June this year.

The network company is looking at alternative deployment methods to cut costs, and Ratcliffe told investors between 10 per cent and 20 per cent of the UFB build will be on overhead lines.

The company today reported earnings before interest, tax, depreciation and amortisation of $331 million in the six months ended Dec. 31 were in line with the $332.5 million forecast by Forsyth Barr analyst Jeremy Simpson. Net profit was $84 million, or 22 cents per share, on sales of $525 million, compared to Simpson's expectations of $80.8 million and $516 million respectively.

The results don't have an easily comparable period, as Chorus was still under the Telecom umbrella until November 2011.

The board declared an interim dividend of 10 cents per share payable on April 12.

Chorus has been caught in a regulatory wrangle in recent months after Telecommunications Commissioner Stephen Gale's draft decision to impose regulated price of unbundled bitstream access services of the ageing copper lines surprised the government and company alike.

The potential price cut has since been put on ice by Communications Minister Amy Adams, who has brought forward a review of the law governing the sector. The government has provided Chorus with a $929 million subsidy to build the fibre network, and there was an implicit expectation the regulator would go easy on the network operator on its regulated business.

Adams' decision gave Chorus enough certainty to shore up its dividend guidance, and it expected to pay 25.5 cents per share in 2014, provided all things remain the same. The board will deliver longer term guidance once the government's review has been completed.

Chorus increased its number of total fixed line connections to 1.79 million as at Dec. 31 from 1.78 million six months earlier. Baseband copper connections fell to 1.56 million from 1.59 million, while unbundled copper local loop connections rose to 109,000 from 97,000. Fibre connections rose to 15,000 from 10,000 and UBA advanced to 72,000 from 50,000.