Chorus boss confirms ultraslow fibre uptake

Chorus has connected just 200 premises to Ultrafast Broadband (UFB) fibre so far, CEO Mark Ratcliffe said this morning at the company’s half-year result.

The total includes homes, schools and businesses, and confirms comments made by Orcon and other retail ISPs that the public is so far displaying little appetite for ultrafast broadband.

The government is chipping $1.35 billion toward the UFB roll-out, $929 million of which has gone to Chorus.

Chorus, which won around 80% of the UFB by premise, is also spending  $1.4 billion to $1.6 billion of its own money on the fibre rollout.

Mr Ratcliffe was unconcerned about the slow uptake. It was early days in the rollout, which began in earnest four months ago. By the end of June, fibre had been laid passed 42,000 homes, with another 5000 in progress; all up around 76,000 premises now have fibre passinig them if the efforts of other UFB builders and wholesalers Enable (which won Christchurch), Northpower (Whangarei) and Utrafast Fibre (central North Island) efforts are included in the rollout total..

The three largest ISPs, who hold more than 75% of the market, had yet to launch fibre plans. Telecom would not until the New Year.

CLOSING THE GAPS: Telecom (blue) and Chorus since the November 2011 separation (S&P Capital IQ; Index: Nov = 100; click to zoom). Today Chorus shares [NZX:CNU] were up as much as 8.53% before closing up 6.65% to $3.37. Telecom shares [NZX:TEL], which dropped 8.53% on Friday fell another 3.97% today to close at $2.42.

Other developments that could drive fibre, such as Sky TV or another broadcaster delivering video over the UFB, were over the horizon.

The slow pace of kerb-to-home connections is frustrating to broadband boosters, but not so much to Chorus, which has its existing copper business to keep things ticking over, and no obligation to pay back its interest-free $929 million to the government until after 2020.

The Chorus CEO said unresolved regulatory issues meant the company could not provide dividend guidance beyond the end of its current financial year.

And speaking to NBR this morning, he continued to play his cards close to his chest.

Chorus is currently offering free connection from the kerb to a home, but has not said what will happen after this promotion expires at the end of this year. Retails ISPs want Chorus or Crown Fibre Holdings to shoulder most of the connection cost.

Orcon CEO Scott Bartlett said most consumers would take fright if retail ISPs had to bear the connection cost, some of which would have to be passed on. Connection costs could run to $1000 or more, with retail ISPs unable to give an exact quote before work got underway – a scenario that would make UFB a very hard sell.

Mr Ratcliffe would say only that discussions with Crown Fibre Holdings were ongoing, and that no single party should shoulder the whole responsibility for the cost of connecting fibre from kerb to home.

In terms of the vexed issue of “averaged” copper line wholesale pricing, the Chorus boss would only say “I can’t understand why the process has dragged on for so long.”

The Commerce Commission is still chewing over a May draft determination to reduce over two years the geographically averaged unbundled copper local loop (UCLL) service to $19.75 a month from its current price of $24.46.

A regulated reduction would hurt Chorus revenue. The company argues that making copper cheaper would also inhibit UFB uptake.

Mr Ratcliffe was disappointed Chorus had been named as one of the companies liable to contribute to the new Telecommunications Development Levy (TDL), which will raise $60 million a year from the industry, which will be used to part-fund the $300 million Rural Broadband Initiative (RBI).

Telecom fought a series of pitched High Court, Court of Appeal and ultimately Supreme Court battles as it disputed the Commerce Commission’s calculations over the old Kiwishare Levy (used to subsidise rural telecommunications before the advent of the TDL). But Mr Ratcliffe told NBR that Chorus would take its oats. The company was unlikely to dispute its contribution.

Investors seemed unworried by the lack of certainty around fibre connection costs, regulated copper pricing and the TDL. In early trading, Chorus shares [NZX:CNU] were up 8.54% on its otherwise buoyant result.

Telecom, Vodafone and 2degrees' pending 4G upgrades were also raised during this morning's conference call. 4G will provide much more mobile bandwidth. Some will be used to accommodate more capacity, or users doing more things, but its should also see raw mobile speed that in some instances approaches that of landlines.

Mr Ratcliffe told NBR that "mobile data will never be a cost-effective competitor to landlines." Freed from the constraint of being a Telecom executive, he was happy to share that he tried to use wi-fi as much as possible with his mobile devices. Beyond that, expansion of mobile networks fuelled the need for more fibre backhaul linking celltowers to networks. In that area, Chorus was doing business with all of the big three mobile network operators.

PONSONBY PAIN

Chorus CEO Mark Ratcliffe says if he had his time again, the central Auckland suburbs of Ponsonby and Remuera might not have been chosen as the first to get fibre.

With their high-income demographic and relatively high number of people working from home, the two suburbs were seen as happy hunting grounds for fibre - and it was hoped they still would be, once Telecom, Vodafone and other big ISPs beyond Orcon actually started offering plans.

But on a logistical level, the suburbs had proved demanding with their hills, and narrow twisting streets. 

Nevertheless, Chorus had stayed on its target $3300 cost per premise passed for the project so far. 

Mr Ratcliffe said most other suburbs had wider streets and bigger grass verges that would prove easier to dig up. Chorus work gangs were also gaining experience as the rollout progressed.