Chorus Shares Plunge on Regulator Price Plan: Wellington Mover

Chorus Ltd., New Zealand’s biggest telephone network operator, fell the most on record after saying that proposed cuts to its wholesale broadband fees could curb annual profits by as much as NZ$160 million ($131 million).

The Commerce Commission said monthly prices for Chorus’s so-called unbundled bit-stream access should be cut by about 28 percent to NZ$32.45 per line from Dec. 1, 2014, in a draft recommendation today. The decision will be finalized in June next year. Chorus shares fell 14.4 percent, the biggest daily drop since the company split from Telecom Corp. of New Zealand Ltd. and listed separately on Nov. 23 last year.

The company’s UBA service allows Internet providers to supply broadband to homes and businesses without needing to replicate Chorus’s existing copper-based network. Chorus, which is working with the government to build an ultra-fast broadband network, is concerned that lowering its price will deter uptake of the new fiber-based service.

“At a time when New Zealand needs economic efficiency, productivity and social progress enabled by public private partnerships, today’s decisions are a significant step backward,” Chief Executive Officer Mark Ratcliffe said in a statement.

Chorus shares fell 49 cents to NZ$2.91 at the 5 p.m. Wellington close.

The draft ruling was “very problematic,” Prime Minister John Key told reporters in Wellington today. He wouldn’t rule out legislation if the final decision was unchanged.

The regulator reviewed the prices following Chorus’s separation from Telecom, comparing them to other countries with similar pricing models. It also issued a final decision on the pricing for access to Chorus’s copper line network, reducing the costs by 3.85 percent, according to the statement. That cut was less than previously expected.

“The collective impact of these two changes if the draft UBA decision were to become final could require Chorus to fundamentally rethink its business model, capital structure and approach to dividends,” the company said in the statement.

The UBA ruling could reduce annual earnings before interest, taxes, depreciation and amortization by between NZ$150 million and NZ$160 million from December 2014, the company said. In August, it reported an inaugural EBITDA of NZ$399 million for the seven months to June 30.

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