Chorus share sellers jumped the gun, say brokers

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The slump in the share price of line network owner Chorus has been put down to misinterpretation and miscommunication of a Commerce Commission decision released last week.

Investors understood there had been a change, but not what the change was, a broker said.

There was a feeling of "here we go again" with more regulation for the company driving down the share price.

Chorus, which was structurally separated from Telecom to be part of the Government's ultra-fast broadband project, opened on Thursday last week at $3.57 a share.

But after the commission released a draft ruling on the pricing for competitors to use its copper line network, the shares fell to $3.25. The next day, they were down to $3.04, a fall of 43c in two days.

By Monday, the shares had recovered slightly to move back up to $3.17. Yesterday they closed at $3.15.

Craigs Investment Partners broker Chris Timms said people did not seem to understand the commission's announcement and adopted a "shoot first" mentality. "They bailed out and when they worked it all out, they started buying back in," he said.

The commission indicated the average UCLL (unbundled copper local loop) price would fall from $24.46 to $19.75 over a three-year period. The urban UCLL price was already $19.84 and the reduction to $19.75 was immaterial to Chorus.

The rural UCLL price was now $36.63 and the commission proposed that it step down in December 2012, 2013 and 2014 until it equalled the urban price which came down at only 3c a year.

The major issue for the company was the pricing of the UCLFS (unconditioned ultra-low frequency service), a Chorus product consumed only by Telecom to operate a "plain old telephone service", or a POTS.

Timms said part of the issue for the telecommunications industry was the widespread use of acronyms.

"If you ask someone on the street what a UCLL is, not many will know. It is not an easy industry to understand. The telecommunications industry is like a bowl of 'alphabet soup'.

"We need to demystify things. Telecommunications is a good industry for a lot of investors."

For overseas investors, selling out on perceived bad news was often the first response, Timms said.

Forsyth Barr broker Tom Bliss agreed the UCLFS price was more significant to Chorus, especially if the price for Telecom voice and broadband lines were to be based off the ultra-low frequency service instead of the UCLL price, as he believed it should be.

"The recent Chorus share price fall looks overdone to us and, notwithstanding the regulatory uncertainty, we are upgrading our recommendation to 'buy'."