Chorus' dividend money should be spent on network: TUANZ chief

Commonsense has prevailed and the government won’t be able to overrule the independence of the Commerce Commission, says TUANZ chief executive Paul Brislen in the wake of all the opposition parties refusing the support any such legislation.

“That’s good news for the long-term interests of both customers and the telco industry alike but it leaves us with the question of Chorus,” he says

“First, we have to determine whether there is a problem that needs fixing. So far, we’ve been told that Chorus ‘could go broke’ if the price of copper wholesale comes down.

“I don’t buy that, and I’ve seen little evidence of that.”

Brislen says the numbers that TUANZ has run are similar to Chorus’s own pronouncements in this area – that it will reduce profit (profit, not revenue) by about $80m to $100m a year. Coincidentally, Chorus pays out about $100m a year in dividend share.

“To my mind, any infrastructure company that is rolling out a once-in-a-generation network wouldn’t expect to also pay a dividend at the same time. That money could and should be ploughed into the network in the interests of long-term sustainable dividend payments in the years ahead.

“My first preference, in that case, would be for Chorus to concentrate on the job at hand, get on with deploying the network and worry about dividend payments once the network is in place.”

He says Chorus has hinted darkly that there may be more afoot. If the final determination is allowed to stand, Chorus CEO Mark Ratcliffe says there will be two outcomes:

“We would have much less cash every year to invest and we simply will not be able to borrow the sums of money we need to make up to a $3 billion investment in UFB.”

Brislen describes this is an extraordinary situation. “How can Chorus have bet so heavily on little or no change in the regulated price of its copper lines? How can they, and their investors, not have seen the writing on the wall when Minister of Communications Steven Joyce gave them a three-year delay to the introduction in order to get their house in order? That they’ve not used that time wisely is shocking and surely won’t go down well at the next board meeting, let alone the annual general meeting.

“If that’s the case, the government must do something because the UFB deployment is too important to New Zealand to allow it to founder at this point.”

Brislen says that if nothing is done, Chorus might fail to deliver on its contract and default.

“The Network Infrastructure Project Agreement (NIPA) between Chorus and the Crown is quite clear on this – default and there are penalties in terms of cash and repayments and an agreement that Chorus will relinquish control of the project to Crown Fibre Holdings, the government agency charged with overseeing the UFB deployment.

“CFH would take direct control of the company and its contractors in order to see the project through to completion.

A second option was to provide more funding for Chorus but . . . “I would need to see some clear evidence of Chorus’s problem before even countenancing this. Chorus is a private company that has bid for a contract and won. If it’s underbid, if it’s failed to secure adequate funding, if it’s failed to consider the obvious regulatory impact, then that is its problem.

“If we were to give Chorus more money we would be rewarding it for poor performance. That money would have to come with serious caveats on spending and should include a radical change in management, dividend policy and possibly the board as well.”

He says Chorus isn’t the only game in town in the fibre deployment world. “If Chorus can’t do the job, perhaps Vector might like another shot at the title.

“Vector missed out to Chorus on the Auckland bid – perhaps taking Auckland off Chorus and giving it to another provider might be the answer.

“Probably the easiest thing for the government to do now is to guarantee Chorus’s debt to the bankers. I’m no financial guru, to put it mildly, and have no idea how any of this works but I’m told it’s the simplest thing the government could do with the least risk to the country.”