EY's Chorus report will be made public Monday - Adams

Speaking to journalists at Parliament, Adams said she believed there were a number of options for shoring up the "sizable shortfall" identified in a report by Ernst & Young Australia in Chorus's ability to fund its portion of the government-assisted UFB rollout.

"There are changes within that fiscal envelope that won't affect the timing (of the rollout)," said Adams. That includes "timing of payments, structuring of payments, some of the specifics of the build requirements that don't affect service provision or the timeframe."

However, she would not rule out the possibility that the exhaustion of all such avenues, the government's agent in the UFB build, Crown Fibre Holdings, could come looking for a top-up from government coffers.

"At this stage, our expectation is the CFH will work through a solution within those parameters," said Adams. "If something changes, they can back to us and we can address that at that time, but that's not my expectation."

Adams would not be drawn on telecommunication infrastructure company Chorus's options for meeting the majority of the shortfall, which appear to include raising new capital or foregoing dividends.

"We asked Ernst & Young to give advice about the steps they (Chorus) can and should be looking at to address that gap. I'm optimistic they will be able to meet all of that themselves."

Adams took the opportunity to take a poke at the "Axe the Copper Tax" campaign, which successfully closed off the political option for the government to legislate to over-rule the Commerce Commission decision to slash the price copper-based broadband services, which lies at the heart of Chorus's difficulties in completing the UFB build.

Acknowledging that the campaign had "won" the argument, Adams invited the telecom retailers who had quietly backed the campaign, including Vodafone, to admit they would not pass on the decreased price of copper broadband to consumers (read Telecom and Vodafone's response here).

Although Mr Ratcliffe welcomed today's report, investors reacted negatively to the ongoing uncertainty about how the UFB funding shortfall will be met.

Chorus shares [NZX:CNU] closed down 3.83% to a new all-time low of $1.38

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Preliminary EY report on Chorus says UFB at risk

EARLIER: An independent report by EY Australia has backed up the government's theory that Commerce Commission copper price cuts would hurt Chorus' finances to the degree that the UFB rollout would be put at risk.

Ms Adams, who received a verbal briefing from EY this morning, says the government must act within the $1.35 billion fiscal envelope of taxpayer funds ear-marked for the 10-year rollout ($929 millon of which is allocated to Chorus).

Chorus says the Commerce Commission-mandated price-cuts will blow a billion hole in its revenue between December 2014 (when they kick in) and 2020, and imperil its ability to borrow to fund further UFB work (Chorus expects to spend $1.7 billion to $1.9 billion on UFB work).

Ms Adams did not specify financial impact in a statement this morning, but did say, “The government expects Chorus to meet a significant part of the shortfall."

The minister statement suggests more pain for Chorus shareholders - which could come in the form of canceled dividends, a cheaper rollout, or another party taking on some of Chorus' leg of the UFB rollout, and perhaps a slice of future profits in the process. Ms Adams was not specific about how the rest of the shortfall would be made up - especially given the government has apparently ruled out putting any more money into the rollout.

“While the quantum of the shortfall is still being finalised and will be outlined in its final report, Ernst & Young has indicated it is unlikely to alter the high-level findings, and that the Government can act with confidence on the information Ernst & Young has supplied," Ms Adams says.

“As a result of this information, and because the Government remains strongly committed to the UFB roll-out, the government expects that the next step will be for Chorus to approach Crown Fibre Holdings (CFH) to discuss specific provisions within the UFB contract."

“The Government supports CFH entering into discussions with Chorus to help manage this issue," Ms Adams says.

“The Government expects to know the outcome of the discussions between CFH and Chorus in a few months’ time.”

A spokeswoman for the Coalition for Fair Internet Pricing, Sue Chetwin, also chief executive of Consumer NZ, said the coalition would make a detailed response later in the day.  But she told NBR that "transparency in this matter is going to be vital to get the best outcome for Kiwi families and businesses, and we urge the minister to commit up the highest standards of transparency. The UFB is too important to get wrong".

ISP CallPlus is a retail customer of Chorus, and a member of the coalition.

CallPlus CEO Mark Callander told NBR, "The timeframe of a few months is concerning, but hopefully the details of the report are disclosed in a transparent manner to all relevant parties. 

"The government needs to focus on other options to ensure the delivery of the UFB network and move away from the proposed copper tax and the options outlined in their Discussion Document. 

"Chorus was always facing the prospect of managing the business with lower copper margins than they have today, but that is clearly not reflected in their current business plans.  Chorus and the Government need to find a solution to deliver UFB that does not artificially raise prices for consumers."

Orcon boss Greg McAlister says, "It’s disappointing that the UFB project could be mismanaged to this extent. At the end of the day, this is taxpayer money being spent, and suggestions that the project could be in jeopardy are very worrying.

"Also, for ISPs such as ourselves, we need certainty around what is happening in the market – whether this is wholesale pricing or roll-out schedules.

"Surely the winning Chorus bid should have been able to stand on it’s own merits, without cross-subsidy from other parts of the business. That’s what other bidders for that contract needed to contend with.

"Serious questions need to be asked as to why CFH and Chorus have found themselves in this position."

ckeall@nbr.co.nz

Follow @ChrisKeall