Chorus, government agree to extend free UFB installation period – potentially paid for by two-year debt holiday

Chorus says it has reached an agreement with the government to extend free non-standard installations until the end of 2019.

That is to say, nearly every home will qualify for a free UFB fibre installed for free until the end of the rollout (as it stands today; more towns are expected to be added as part of “UFB 2” later this year).

At the start of the project, Chorus was going to charge for “non-standard” UFB installs, such as those down right-of-ways or within apartment blocks.

However, after being leaned on by Crown Fibre Holdings, it agreed to put $20 million aside to fund non-standard installations itself. The amount was later topped up to $28 million in an agreement covering up to the end of this year.

Chorus says no additional funding needs to be allocated to cover the cost of extending the free non-standard installation period.

It will either be covered by a regulator change to a so-called “building blocks” modelled (anticipated in a government discussion paper on the sweeping review of the Telecommunications Act, which is due to be updated by the end of 2019) or, if that doesn’t happen, a repayment holiday of up to two years on debt owed to the Crown, valued at up to $60 million.

(As part of its $1.6 billion contribution to the rollout, the government is investing $921 million in Chorus, half in debt securities, half in non-voting shares).

“We’ve therefore taken the pragmatic approach that a building block model is likely to include the cost of residential non-standard installations in a regulated asset base, thereby allowing a regulated return on this investment,” Chorus chief financial officer Andrew Carroll says.

“In the event that this hasn’t occurred by December 31, 2020, or not all of Chorus’ actual UFB non-standard installation costs are included in the asset base, the dates on which Chorus must redeem or provide dividends on the CFH debt and equity securities will be postponed.

“The CFH security postponement dates would effectively range from a few months in the event that 80% of non-standard installation costs are included in an asset base, through to about two years in the event that no costs are included.”

Reporting its annual result in August, Chorus still estimated the cost of the UFB communal network to be between $1.75 billion and $1.8 billion.

As at June 30, it was 57% of the way through with almost 831,000 premises passed at an average cost of $1118, or $1078 in 2011 prices.