Chorus says UFB will cost $300m more than expected

UPDATE / 11.45am: Chorus shares [NZX:CNU] were down 1.97% to $2.98 in late morning trading.

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9.45am: Chorus, the telecommunications network operator spun out by Telecom at the end of 2011, met analyst expectations for its first-half earnings, while raising the forecast cost of building a nationwide ultra-fast broadband network by $300 million.

Earnings before interest, tax, depreciation and amortisation of $331 million in the six months ended December 31 were in line with the $332.5 million forecast by Forsyth Barr analyst Jeremy Simpson.

The Wellington-based company posted a net profit of $84 million, or 22 cents per share, on sales of $525 million, compared to Simpson's expectations of $80.8 million and $516 million, respectively.

The results do not have an easily comparable period, as Chorus was still under the Telecom umbrella until November 2011.

Chorus raised its expectations for the total UFB build to between $1.7 billion and $1.9 billion from a range of $1.4 billion and $1.6 billion, and flagged capital expenditure of $640 million to $690 million this financial year from previous guidance of $560 million to $610 million.

"While we have made progress and reduced deployment costs for about 90 percent of our ultra-fast broadband build areas, we did not anticipate the extreme costs in the remaining 10 percent of areas," chief executive Mark Ratcliffe says in a statement.

"This is specifically because of the significant variability in regional compliance requirements and civil work that is driving up the cost per premises passed."

Rollout consistent

Chorus says the rate of its UFB rollout has been consistent with expectations, with building work completed for 88,590 premises as at December 31, and it is on target to pass 149,000 premises by the end of June this year.

The board declared an interim dividend of 10 cents per share, payable on April 12. The stock fell 1 percent to $3.04 on Friday.

Chorus is at loggerheads with Telecommunications Commissioner Stephen Gale, who surprised the Beehive by indicating he would probably impose sharp cuts to the regulated price of unbundled bitstream access services of the company's ageing copper lines.

That has since been put on ice by Communications Minister Amy Adams, who has brought forward a review of the law governing the sector.

The government has provided Chorus with a $929 million subsidy to build the fibre network and there was an implicit expectation the regulator would go easy on the network operator on its regulated business.

Ms Adams' decision gave Chorus enough certainty to shore up its dividend guidance and it expected to pay 25.5 cents per share in 2014, provided all things remain the same. The board will deliver longer term guidance once the government's review has been completed.

Chorus increased its number of total fixed line connections to 1.79 million as at December 31 from 1.78 million six months earlier.

Baseband copper connections fell to 1.56 million from 1.59 million, while unbundled copper local loop connections rose to 109,000 from 97,000. Fibre connections rose to 15,000 from 10,000 and UBA advanced to 72,000 from 50,000.

(BusinessDesk)