Chorus submits fibre revenue proposal

STOCK EXCHANGE ANNOUNCEMENT
17 May 2021
Chorus submits fibre revenue proposal
Chorus has communicated its maximum allowable revenue (MAR) submission to the
Commerce Commission for the first regulatory period from 2022 to 2024.
The MAR submission is based upon the conservative starting Regulated Asset Base
(RAB) of $5.5 billion submitted to the Commission in late March, which Chorus
advocates strongly should be higher to better reflect the cost of building our UFB
network.
Chorus’ submission results in an annual revenue range of $720 million to $820
million during the period. “This is consistent with Chorus’ forecast fibre revenues in
the first regulatory period,” said Chorus CEO JB Rousselot.
“We want to encourage fibre uptake, investment and innovation, consistent with the
goals of our public-private partnership with government and our desire to help more
New Zealanders realise the benefits of fibre broadband.
“The MAR proposal includes the use of tilted depreciation to ensure a smooth
transition into the new regulatory regime and properly reflect the commercial risks
we face.”
Depreciation tilting was identified by government and confirmed by the Commission
in the Input Methodologies as a tool to be used to reduce revenue volatility in the
transition to the new regulatory framework. It is NPV neutral, so doesn’t change the
overall returns Chorus receives.
As per the Commission’s requirements, Chorus’ proposal reflects inflation and risk-
free rate assumptions used in our prior update on April 6 (see summary of key
assumptions below). That update did not include tilted depreciation or revenue
smoothing.
Ongoing regulatory processes
In parallel with the submission of its MAR proposal, Chorus continues to engage with
the Commission on other aspects of the new regulatory framework.
In particular, Chorus advocates strongly for consideration of RAB outcomes that
reflect the true costs of the UFB public-private partnership requirements. Chorus has
estimated this would result in RAB outcomes of up to $6 billion. Issues including
WACC and stranding risk will also be raised as part of the Commission’s upcoming
Input Methodologies consultation.



Chorus

Limited

Level 10, 1 Willis

Street

P O Box

632

Wellington
New

Zealand


Email:

company.secretary@chorus.co.nz

Mr Rousselot said Chorus’ expectation is that the Commission should be able to
make the substantive decisions needed to provide certainty on key regulatory inputs
before the end of 2021.
“We need certainty as soon as possible to be able to support discretionary activity
from the start of the new regulatory period in January. While there may be some
fine tuning needed beyond then, we believe clarity on the final RAB valuation and
regulatory MAR is necessary and achievable,” he said.
Key MAR assumptions
Chorus has kept the following assumptions consistent with its initial 6 April
modelling at the Commission’s request:
1. A risk-free rate spot rate of 0.51%. The final risk-free rate is currently expected
to be set based on the average over the three months ending 31 May 2021.
2. The inflation/indexation rates reflected in Chorus’ MAR proposal are: 1.46% in
2022, 1.85% in 2023 and 2.06% in 2024. Final Price-Quality decisions on revenue
are currently expected to be updated for Consumer Price Index data for the quarter
ended 31 March and inflation forecasts from the May 2021 Monetary Policy
Statement.
Authorised by:
David Collins
Chief Financial Officer

ENDS

For further information:
Brett Jackson Investor Relations Manager
Phone: +64 4 896 4039
Mobile: +64 (27) 488 7808
Email: Brett.Jackson@chorus.co.nz

Steve Pettigrew
Head of External Communications
Mobile: +64 27 258 6257
Email: steve.pettigrew@chorus.co.nz

---

17 May 2021
CHORUS MAR PROPOSAL
1
Chorus MAR range vs estimated regulated fibre
revenues
>Smoothed MAR range of $720m-$820m per annum is
based on conservative starting RAB of $5.5 billion
▪Chorus has proposed that depreciation rates could be tilted
either for specific asset categories, or for the financial loss
asset, with a similar result
▪The Commerce Commission noted in its fibre Input
Methodologies decision that it is common practice in utility
regulation to smooth revenue caps to address potential
annual price volatility within a regulated period
▪the unsmoothed MAR range is $760m-$780m per annum
▪without tilting or smoothing the MAR range would be
consistent with the indicative MAR range of $680m-$710m
advised to market on 6 April
0
200
400
600
800
1000
1200
0
200
400
600
800
1000
1200
Other Chorus revenue
Regulated fibre revenue (estimated)
Chorus proposed MAR 14 May (smoothed)
$m
Note: Chorus assessment of FFLAS revenue is based on final Input Methodologies. Subject to completion of Commerce Commission process.