Commerce Commission releases Price Quality draft decision

STOCK EXCHANGE ANNOUNCEMENT
27 May 2021
Commerce Commission releases price-quality draft decision for Chorus’
fibre business
The Commerce Commission has released its draft decision on Chorus’ price-quality
determination for the first regulatory period for fibre (RP1, 2022-2024).
The draft decision references an annual revenue range of $689 million to $786
million, including pass-through costs, during RP1 and remains broadly consistent
with Chorus’ forecast fibre revenues for the period.
However, today’s draft decision is based on Chorus’ recently submitted conservative
RAB estimate of $5.5 billion and doesn’t reflect critical decisions yet to be made by
the Commission on the initial value of the fibre network. Risk-free rate and inflation
assumptions will also need to be updated when the Commission makes its final
decision.
Key elements of today’s decision include:
• a diminishing value depreciation method for the financial loss asset, using a
depreciation rate of 14.3%
• smoothing of the revenue profile in the period
• post-tax WACC of 4.46%, including risk-free rate of 0.43% for three-months
ending 31 March
• reductions to capital expenditure, largely reflecting differing demand and
inflation assumptions and proposals to require additional evaluation for
incentive and innovation spend
• a proposed 10.6% or $52m reduction to Chorus’ operating expenditure in the
period
A table from the Commission’s draft decision summarising these key elements is
attached. The Commission’s decision is available here.
Chorus submitted a proposed MAR of $720 million to $820 million to the Commission
on 17 May.
Chorus CEO JB Rousselot said Chorus will review the Commission’s decision carefully
and a key focus area for its submissions will be ensuring the expenditure allowed by
the Commission can support the ongoing rollout and operation of our world class
fibre network.




Chorus

Limited

Level 10, 1 Willis

Street

P O Box

632

Wellington
New

Zealand


Email:

company.secretary@chorus.co.nz

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

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27 May 2021
DRAFT PRICE-QUALITY DECISION
1
MAR ranges vs forecast
fibre revenues
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)
Draft PQ 27 May
$m
Note: Chorus assessment of FFLAS revenue is based on final Input Methodologies.
Forecastrevenuesupdatedtoreflectcurrentbusinessplan.Subject to completion of
Commerce Commission process.
Source: page 9, Commerce Commission draft decision 27 May
2021. Note: Total excludes pass-through costs of ~$15m p.a.