Chorus can close UFB funding gap to $250m

Ernst & Young Australia’s report into Chorus’s ability to deliver on its broadband contracts with Crown Fibre Holdings says the company could reduce the funding gap to $250 million or less with “cash flow savings initiatives”.

The report was commissioned by Communications Minister Amy Adams to investigate whether Chorus is able to meet its obligations building two government supported broadband projects.

Last month, Chorus revealed it faced a significant financial shortfall — around $1 billion — as a result of the Commerce Commission’s half-price cut to Unbundled Bitstream Access (UBA). This covered approximately 1.1 million copper broadband connections. 

In 2009 when it was still part of Telecom NZ, Chorus won contracts to build the lion’s share of the Ultrafast Broadband fibre network and provide fibre for the mobile towers delivering the Rural Broadband Initiative project.

ComCom wants copper price reduction

A Commerce Commission decision, following government dictated guidelines, called for a reduction in the cost Chorus could charge telcos to deliver copper-based services to customers. At the time, Chorus said the price reduction could punch a billion dollar hole in its finances.

The independent report confirms this.

Adams says: “Copper price changes will have a significant impact on Chorus’ financial position, and the wide range of actions that Chorus can consider taking itself will not be sufficient to cover the funding shortfall to safeguard the UFB and RBI build commitments”.

Report contradicts lobbyist claims

She says the report contradicts claims by lobbyists and campaigners elsewhere in the industry that these figures were overstated. The retail telecommunications service providers also claimed the figures were overcooked.

The Ernst & Young report goes on to say that Chorus could reduce the estimated funding gap from $1 billion to between $200 million and $250 million by implementing a number of cash flow savings initiatives.

A statement from the minister’s office says Crown Fibre Holdings and Chorus have begun discussions about possible contract adjustments to help close the funding gap.