Moody’s Investor Services is forecasting Chorus’ revenues from fibre services to rise from 35 percent of total in H1 FY2019 to 80 percent by FY25.
It says this would mean 80 percent of Chorus revenues being subject to the Commerce Commission’s regulatory regime based on the building block model (BBM) that it is developing and likely to apply from 2022. Until then prices for Chorus’ regulated copper and fibre services will be capped at 2019 levels, plus a CPI adjustment.
Under the Telecommunications (New Regulatory Framework) Amendment Act of 2018 the Commerce Commission is required to develop methodologies to set the rules and processes for regulating fibre services. It is expected to finalise these by June 2020, and has indicated that the BBM is likely to best meet the objectives of the Act.
Moody’s says, under the BBM, the commission will calculate the value of Chorus’ network supplying its regulated fibre services and use this, along with its other costs and an allowed return as the basis for calculating the prices Chorus can charge for its regulated fibre services.
Moody’s says the new regulatory framework will improve Chorus’ revenue predictability and stability and hence support the company’s credit profile because. It says price and revenue shocks are unlikely under the new framework, in contrast to the previous regime.
“The new framework will feature a revenue cap, which will be calculated based on the company's costs and an allowed return to be determined by [the Commerce Commission]. This provides good revenue predictability over the regulatory period.
“In addition, we expect that the new regulatory framework will reduce uncertainty over regulatory resets, compared with the past regulatory framework for copper networks, where a price cap for copper products was in the first instance set based on benchmarking against prices in selected comparator countries.”