Chorus working to counter reductions

Cost cutting by Chorus is likely to include job losses. Photo / APN

Chorus says it isn't relying on High Court action or an appeal to the Commerce Commission to reduce the changes it has to make to its business after broadband price cuts.

Last year the lines company estimated commission cuts to wholesale broadband prices could shave $142 million off its annual earnings and lead to a funding gap of $1 billion for its leg of the ultrafast broadband project.

While the firm has filed High Court action over the regulation and appealed against the level of the cuts with the commission, chief executive Mark Ratcliffe said yesterday Chorus wasn't relying on the success of these processes to reduce the need for the company to make changes.

The Wellington-based company is introducing several initiatives to mitigate the impact of the looming price cuts, which will see less re-investment in the copper lines, the introduction of new unregulated revenue streams and operational cost-cutting which will likely include job losses.

Chorus is targeting capital expenditure savings of between $300 million and $350 million up to and including the 2020 financial year, which will limit the amount of network spending outside the government-sponsored ultrafast broadband and rural broadband initiative schemes, and reduce the amount of proactive maintenance.

The company also hopes to generate additional annual revenue of between $10 million and $15 million from providing non-regulated wholesale products, and achieve annual operational cost savings of between $20 million and $30 million.

As a consequence of the reduced capital spend, Chorus will forgo annual growth revenue of between $100 million and $150 million through the six-year period that would have been generated by the investment.

"We are managing for cash - if there are investment opportunities where we can secure something like full cost recovery up front, then we'll look at those," said chief financial officer Andrew Carroll.

"In situations when managing for cash where payback is two or three years away, we just don't have that flexibility - it's a trade-off between value and cash." In its annual results yesterday, Chorus said it had decided not to pay an interim dividend. It withdrew dividend guidance late last year after the price cuts.

Chorus reported that its profit was down 7 per cent to $78 million for the six months to December 31.

The company's revenue was up 2 per cent to $535 million for the half year and earnings before interest, tax, depreciation and amortisation (ebitda) was down from $331 million to $329 million for six months.

Chorus shares closed down 1.5c yesterday at $1.42. Its share price has fallen by more than 50 per cent over the past year.

- additional reporting BusinessDesk