Chorus braces for $10m earnings hit…

Chorus expects 2014 earnings to take a $9 – $10 million hit following the Commerce Commission’s decision to raise the price of another component on the company’s copper lines – backdating the charge in the process.

The Commerce Commission has determined that unbundled copper low frequency service (UCLFS) charges should be re-set so that they are the same as benchmarked unbundled copper local loop (UCLL) that were set in a determination made on 3 December 2012.

This means that the UCLFS connection charges will change to align to the benchmarked UCLL connection charges.

Chorus estimates that this decision would have an annualised EBITDA impact of around $6 million.

The Commission also requires that the new UCLFS connection charges be backdated to 3 December 2012, including interest.

The net effect of backdating and interest charges is estimated to reduce Chorus’ FY14 EBITDA by an indicative $9-$10 million.

Chorus’ FY14 EBITDA guidance range is unchanged but the consequence of the decision is that Chorus now expects to track to the middle of the range of flat to low single digit percentage decline in EBITDA, relative to underlying FY13 EBITDA of $654 million.

RSPs currently pay UCLFS connection charges to connect end users to Chorus’ UCLFS, in addition to ongoing monthly rentals for accessing these services.

Chorus’ view is that connection charges for UCLL are part of the UCLL final pricing principle (FPP) process that is due to be completed by 1 December 2014.

Those processes use a cost modelling rather than a benchmarking approach. Chorus proposed that the Commission consider the review of the UCLFS connection charges with the benefit of cost modelling analysis.

In a situation where the final pricing reviews change benchmarked connection charges again, consideration of backdating remains relevant – today’s outcomes have the potential to be reversed.

The effect of the Commission’s decision is that any changes to the benchmarked UCLL prices as a consequence of the UCLL FPP process will automatically flow through to the UCLFS prices.

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