Regulatory environment 'a huge sticking point,' Chorus chairman Strange says

UPDATED: Regulatory regime still 'a sticking point' – Chorus

New Zealand's regulatory environment is still "a huge sticking point" that's stifling Chorus's [NZX: CNU] ability to invest in its telecommunications network, according to chairman Patrick Strange.

The Wellington-based company is awaiting a final determination by the Commerce Commission on how much it can charge retailers to access its ubiquitous copper network. The outcome, expected in December, will have a bearing on the company's ability to fund further investment in broadband and whether it can lift the suspension on dividend payments to shareholders, Dr Strange told shareholders at their annual meeting in Wellington.

"While broadband networks can transform communities and economies, they first need investors to build them," Dr Strange said in speech notes published on the NZX. "And that's where New Zealand's regulatory environment remains a huge sticking point."

Last year, Chorus suspended dividends when it renegotiated the terms of Crown funding for the ultra-fast broadband fibre network, following regulatory uncertainty about copper network access prices. That prompted the company to clamp down on spending to help bridge the funding gap caused by the commission's initial decision, while remaining within its banking covenants.

Dr Strange, a former chief executive of national grid operator Transpower, today said the difference between the regulatory regimes of the electricity and telecommunications sectors was that "electricity has an orthodox regulatory regime that recognises the need for the investor to be able to rely on it for the 30 years of returns required."

Chorus plans to submit proposals to participate in the government's extension of the UFB build but will only take part if it delivers long-term value to shareholders, Dr Strange said.

The company will also make a submission on the government's review of the telecommunications regime, and has welcomed the Crown's suggestion that a building block model similar to that used in the electricity sector may be implemented from 2020 onward.

"We have welcomed this approach in principle, because we believe it is the only logical solution to encouraging long-term network investment," Dr Strange said. "We believe that with the right regulatory and policy settings, New Zealand could achieve regional and rural broadband coverage well beyond the government's current goals."

Chief executive Mark Ratcliffe echoed his chairman's sentiments about the regulatory regime remaining a "deep concern," while noting a less fractured industry was a positive change.

"We watch in hope that the progress made on a range of fronts is not undermined by poor quality regulation, but also reflect back on a year of quite significant progress where New Zealand moved right to the forefront of international broadband practices," Mr Ratcliffe said.

Chorus shares rose 0.4% to $2.885 and have gained 8.1% this year.

(BusinessDesk)