Commission’s draft Fibre Input Methodologies Decision

Chorus Limited
Level 10, 1 Willis Street
P O Box 632
Wellington
New Zealand

Email: company.secretary@chorus.co.nz


STOCK EXCHANGE ANNOUNCEMENT


19 November 2019


Release of Commerce Commission’s draft Fibre Input Methodologies Decision

The Commerce Commission has today released its draft Fibre Input Methodologies
Decision.

“We thank the Commission for the considerable work that has gone into the draft
decision and welcome this step towards establishing a utility style framework for New
Zealand’s key communications infrastructure,” said Kate McKenzie, Chorus’ CEO.

The draft decision will be followed by a final Input Methodologies decision in mid-2020.
This then sets the rules for a Price Quality Determination, which will establish Chorus’
revenue cap and quality requirements for 1 January 2022 to 31 December 2024. The
final Price Quality Determination is expected in mid-2021.

Today’s draft decision is detailed and complex and we will be responding to various
issues through the submission process.

• We note that the Commission’s overall approach to WACC is an improvement against
that of its Emerging Views paper. However, the implied WACC rate for the period to
FY22 is still below that required to ensure our cost of capital reflects a fair return to
investors given the investment risks taken.

• The draft decision has suggested the pre FY22 WACC will have a risk free rate that
varies each year, with the term of the risk free rate based on the number of years
remaining until the implementation date.

• The Commission has suggested an increase in asset beta from 0.46 to 0.49. While
this is an improvement this continues to underestimate the asset beta of a fibre
network, particularly through the rollout period. A higher asset beta was
acknowledged by Crown Fibre before the rollout began and has been used by
regulators for European fibre networks.

• We welcome the Commission’s acknowledgement that market circumstances have
changed and a revised TAMRP of 7.5% is appropriate.

• The Commission’s draft decision suggests there will be no WACC uplift from the 50
th

percentile. This is at odds with all other regulated utilities in New Zealand. Other
international regulators have recognised the need for an uplift to encourage fibre
network investment.

• The Commission is considering a small ex ante allowance to compensate for Type II
asymmetric risk.


• We welcome the Commission’s recognition that tax losses can be carried forward to
the implementation date.

• The draft decision indicates a change in the Commission’s approach to the treatment
of Crown financing and we will need to review the implications of this.

We welcome the opportunity to submit on the draft decision and will be making
submissions to the Commission on the due date of 28 January 2020.

The Commission’s draft decision is available at:
https://comcom.govt.nz/regulated-
industries/telecommunications/projects/fibre-input-methodologies

ENDS
For further information:

Nathan Beaumont
Stakeholder Communications Manager
Mobile: 021 243 8412
Email: nathan.beaumont@chorus.co.nz

Brett Jackson
Investor Relations Manager
Mobile: 027 4887808
Email: brett.jackson@chorus.co.nz