Chorus’ Fibre Network Valued At $5.427b

Commission Releases Draft Decision Valuing Chorus’ Fibre Network At $5.427b

The Commerce Commission has released for consultation a draft view on the value of Chorus’ fibre network for regulatory purposes.

The value of the network – or Chorus’ initial regulatory asset base (RAB) – is a key building block in determining the revenues Chorus will be able to earn over the first three years of the new regulatory regime starting 1 January 2022.

Chorus built the fibre network in partnership with Government-owned Crown Infrastructure Partners (previously Crown Fibre Holdings) under the Ultra-Fast Broadband programme.

Under the Telecommunications Act, the initial RAB includes the assets Chorus uses to provide fibre broadband services, as well as a Financial Loss Asset (FLA) to compensate Chorus for losses incurred in rolling out the fibre network ahead of demand.

Telecommunications Commissioner Tristan Gilbertson said that today’s draft decision follows consultation on the $5.507 billion initial RAB valuation that Chorus submitted to the Commission in March 2021.

“We have reviewed Chorus’ submission with the benefit of input from external experts and other stakeholders. Central to this has been testing Chorus’ estimate against the requirements of the Fibre Input Methodologies (IMs) we set last year. These IMs were designed to allow Chorus to earn an appropriate return on its investment while promoting the long-term interests of Kiwi broadband users around price and quality.”

As a result of this process, the Commission has proposed reducing Chorus’ $5.507 billion initial RAB by around $160 million, due largely to a different view on the allocation of certain costs to Chorus’ fibre network. This reduction has been partially offset by changes made to improve the approach to calculating Chorus’ FLA, which adds back around $80 million. The net result is a proposed reduction of Chorus’ initial RAB estimate by $80 million to a total of $5.427 billion.

“While we mostly agreed with Chorus’ proposed asset valuations, we considered that some infrastructure and overhead costs that have been allocated to its fibre network should more appropriately be allocated to its copper network and other parts of its business,” Mr Gilbertson said. “These types of costs should not be passed on to fibre consumers.”

The Commission is seeking feedback on its draft decision from Chorus and other stakeholders. It will make its final decision on Chorus’ initial RAB next year, when all necessary information is available, but will set a transitional initial RAB value in December using currently available information. This will be used as an input into the price-quality path for the three years from 1 January 2022 that will also be set in December.

Mr Gilbertson said that the Commission’s decisions on the maximum revenue Chorus can earn, along with the declared price cap that will apply to the most popular 100Mbps fibre product, will enable a smooth transition of prices into the new regime, while ensuring that Chorus maintains quality standards for consumers.

The draft decision is on the Commission’s website.

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