Commerce Commission sets Chorus fibre asset value at $5.427 b

In 2021 the Commerce Commission completed its fibre input methodologies review under Part 4 of the Commerce Act. It confirmed Chorus’s regulated asset base at $5.427 billion using the building blocks model.

While the number looks technical. It is not.

The regulated asset base, or RAB, sets the foundation for allowable revenue. It determines the maximum the company can earn from operating the Ultrafast Broadband network.

In the Commission’s words, the decision is:

“Part of the process for determining the maximum revenues the company will be able to earn from the operation of the Ultrafast Broadband network.”

Chorus argued for an asset value about $80 million higher. The final figure is roughly one and a half percent below that claim.

Regulated asset base

The RAB is central to New Zealand’s fibre regime.

It represents the value of the assets on which Chorus is allowed to earn a regulated return. That return is calculated using the weighted average cost of capital, or WACC.

A small change in the asset base compounds over time. A lower RAB means lower allowable revenue year after year. The impact shows up clearly in Chorus earnings results.

For investors, this is not abstract. It anchors future cash flow.

This decision links directly to later debates about fibre profits and whether returns are above or below regulatory benchmarks. It also sits alongside subsequent price-quality path decisions and the PSTN sunset, which shifts the regulatory focus fully onto fibre services.

How the building blocks model works

The building blocks model determines allowable revenue by combining:

• the regulated asset base
• depreciation
• operating expenditure
• the weighted average cost of capital

Together these building blocks set the maximum revenue the network operator can recover from regulated services.

The model is designed to balance two goals. Consumers should not pay monopoly prices. Investors should have enough certainty to fund long-life infrastructure.

This decision was part of locking in those foundations before the first price-quality path period began.

A long time brewing

The process did not begin in 2021.

As far back as 2017, officials and industry participants were debating how to treat assets built before the fibre rollout and how they should be reflected in the regulated asset base.

At the time, one source joked about arguments over the resale value of old trucks and telephone poles.

It is an exaggeration. But it captures the point. Asset valuation in a regulated regime is detailed, technical and contested.

Market reaction

Some investors expressed frustration with the valuation process. A lower asset base reduces long-term revenue.

Yet the share price rose sharply when the decision was announced. The market appeared to welcome the clarity.

Regulation is not only about the final number. It is about predictability.

Investment incentives and regulatory risk

New Zealand's Ultrafast Broadband network was built as a public-private partnership. At the outset, the project carried risk. Investors expected returns that reflected that risk.

The rollout proved more successful than early projections suggested. Returns have been solid.

Some investors argue that regulatory asset decisions can retrospectively reduce those returns. Whether that argument stands up is less important than perception.

Governments will return to private capital markets to fund future infrastructure. Investors will price regulatory risk into those decisions.

If the regime is seen as stable, capital costs remain lower. If it is seen as uncertain, costs rise.

The 2021 asset valuation decision does not stand alone. It forms part of the framework that will govern fibre revenue for decades.