Chorus expects lower UFB build costs after signing new contracts

Chorus [NZX: CNU], the regulated telecommunications network operator, expects the roll-out of its ultrafast broadband network to cost less in the current financial year after cutting new deals on its contracts.

The Wellington-based company anticipates UFB connection costs of between $1,150 and $1,350 in the 12 months ending June 30, 2015, compared to a previous range of between $1,300 and $1,500, it said in a statement. The lower cost comes from new contracts with Visionstream and Downer to provide network connections at fixed prices, varied according to agreed deployment types, and covers Auckland, and the lower North and lower South Island UFB areas.

Chorus maintained its guidance for total capital expenditure on UFB connections in the 2015 year to be between $105 million and $115 million, with volumes running ahead of budget.

"These new contracts and updated pricing are linked to an ongoing national tender process," Chorus general manager infrastructure Ed Beattie said. "With the experience of about 40,000 connections to the fibre network now behind them, daily connection volumes are becoming more consistent and new deployment methods in use, service companies have been able to identify efficiencies earlier than expected."

Chorus signed six-year contracts with Leighton Holdings-owned Visionstream and Downer in April last year worth about $1 billion, which also included parts of the rural broadband initiative. It later signed an $88 million deal with Transfield Services in a long-running negotiation, during which time Transfield got a ‘please explain’ from the New Zealand firm when subcontractors working for Chorus downed tools after going unpaid for extended periods of time.

Last month, Chorus said it was 34 percent through the UFB roll-out, with the build completed for 286,000 premises and 386,000 end users who are within reach of the government-sponsored network.

The network operator has been trying to mitigate the impact of looming regulation on its charges for access to its copper line services, still the bulk of its business, and has sought a final pricing principle (FPP) review by the Commerce Commission, which means the watchdog will have to determine an economic cost model to find the true cost of the service rather than relying on international experience as a benchmark.

The new contract with Visionstream will apply Dec. 1 and run to February 2016, with an option to extend that until the end of 2019 subject to pricing and performance. The Downer contract is retrospective from July 1, and runs to the end of February next year.

The fixed rates will also apply to non-standard single dwelling unit connections, which Chorus said should enable some reduction in non-standard install costs.

The company's tender process for non-Auckland areas and is expected to be completed by the end of December and applied by February.

Shares of Chorus fell 1 percent to $2.02 and have jumped 42 percent this year, having been punished last year during the height of regulatory uncertainty.

(BusinessDesk)