Fibre Broadband Shares

[Snoopy]

I live on a R.O.W. with 3 other properties. I received a bunch of paperwork from Chorus saying one of the other properties had requested fibre and as it is a shared ROW that they needed everyone's permission. No problem, I and another owner gave our consent.
That was August, so at the start of lockdown, but Chorus workers were still out and about as essential workers (our street had fibre laid to section frontages early 2021). About the same time Chorus phoned and asked if we would like fibre connected to our house, even though I said I was happy with our VDSL service at present. No charge to set it up and of course it made sense for a quick swap to fibre services in future if/when wanted.
So I said yes and am still waiting for the rep to arrive to check what is needed to do the job.
They've either forgotten, or more likely the 4th person on the ROW has not given their consent (which would not surprise me-he's the sort to be bloody-minded if he doesn't want it, or just wants to annoy the other residents) as the original household wanting the fibre has not been connected. I should really contact Chorus and find out, but it's low priority for me at present.

Enable rolled their cable past my gate around five years ago. I remember an Enable guy came around asking if I was interested in switching to broadband fibre, which I said I wasn't. Then he had another go asking if I thought I might change my mind in the next six months. This is fair enough and sensible marketing. Although nothing happened as I presume the neighbours at the time didn't want fibre broadband either. Subsequent neighbours did want fibre broadband. But that installation required permission from a third property tenant which they did not give (my immediate neighbour and the third party tenant did not get on). So nothing subsequent happened on that second occasion. Roll forward to today and there is -apparently- a kind of 'push' strategy going on: to get customers onto fibre that have not ordered it. Maybe Enable are taking the very long term view and such a strategy is sensible? Or maybe their installation contractors are 'in between new suburbs', so Enable need to find them work to do in the interim? (these days if you let contractors go, you might not get them back).

There is little doubt that fibre broadband is the best broadband technology from a performance perspective. But there is also little doubt that many broadband users find something 'less than the best' (in your case VDSL, in my case fixed mobile) more than good enough. The key comment you make about switching 'being a low priority' certainly resonates with me. And with the likes of Spark dangling so called 'fixed mobile' deals in front of their customers, there is often a low priority to seek out fibre alternatives when fixed wireless is offered. Perhaps the only way to compete with 'fixed mobile' is to have fibre broadband ready to go on the doorstep?

We have a special case in Christchurch where Chorus own the copper wires and Enable own the fibre. So maybe Enable are on a mission to 'get rid of Chorus' from Christchurch? I say that because once an alternative service is available, Chorus plan to eventually phase out their copper line service (which means more customers for enable or one of the fixed wireless providers). But if Chorus pull out their copper lines from Christchurch, then that means they are guaranteed to lose customers. I guess network dynamics are different when the owners of the copper and the owners of the fibre are different!

SNOOPY

P.S. Note that if you do decide to move away from VDSL but you change your mind later, your phone company will most likely not allow you to go back.

[Grimy]

We are in an area that doesn't get mobile coverage, so at present fibre will be the only option in the future - once they stop maintaining the copper line, which is why I am happy enough to run the fibre to the house for future-proofing. But at present VDSL is fine for my needs. And the fact that it seems the installation may have been stymied by the neighbour.
I was talking to one of the Chorus guys when they were doing the street works. He was very happy with his VDSL at home.....I must admit that our speeds seem to have increased since most of the street changed to fibre!

[kiwico]

P.S. Note that if you do decide to move away from VDSL but you change your mind later, your phone company will most likely not allow you to go back.

When we went from VDSL to Fibre they cut the copper line. We still have a landline and the copper line was affecting that, as it was receiving a connection from both. So certainly no way back for me. The other issue was that Slingshot, despite pushing for the move to Fibre, decided an extra $5 should be added to my fixed term bill (before I complained). Almost, but can't be, as bad as Vodafone.

[Gonzoid]

I was coming up for my slingshot fibre $85.00 mth and as there $62.00ish new rate was for new customers I have started the move to skinny for effectively under $60.00 a month. It did annoy me when they increased my 12 month "Deal" the extra Chorus was charging them but was still more than their new deal for new C's!

[Gonzoid]

My fibre install took 3 months spanning over Xmas.

[Snoopy]

The 'Enable Annual Reports' may be found here:

https://www.enable.net.nz/about-enab...-publications/

Profits for the last five years have been normalised as described in the notes below:

'Earnings Per Share' = 'Adjusted Net Profit' / 'No. Shares on Issue'

FY2016: [$3.311m - $11.838m + 0.72( $0.377m + 0.005m)] / 34m = -24.3cps

FY2017: [-$8.518m - 0.72( $0.023m)] / 44m = -19.4cps

FY2018: [-$3.783m + 0.72($0.021m)] / 67.5m = -5.6cps

FY2019: [+$10.830m + 0.72($0.015m)] / 67.5m = 16.1cps

FY2020: [+$11.320m + 0.72($0.010m) - $0.006m] / 67.5m = 16.8cps


Notes

1/ For FY2016, I have removed $11.838m of asset revaluations that came about from a business recombination, added back $377k of business acquisition costs and $5k of Forex losses.
2/ For FY2017, I have removed $23k of Forex gains.
3/ For FY2018, I have added back $21k of Forex losses.
4/ For FY2019, I have added back $15k of Forex losses.
5/ For FY2020, I have added back $10k of Forex losses and subtracted $6k from asset sales

The eps trend is all one way, and that is up!

Conclusion: Pass Test

A couple of reporting periods have gone by since I last reported. So here are the updated numbers on how 'Enable', the Christchurch region's equivalent of Chorus, is doing. The 'Enable Annual Reports' may be found here:

https://www.enable.net.nz/about-enab...-publications/

Profits for the last five years have been normalised as described in the notes below:

'Earnings Per Share' = 'Adjusted Net Profit' / 'No. Shares on Issue'


FY2018: [-$3.783m + 0.72($0.021m)] / 67.5m = -5.6cps

FY2019: [+$10.830m + 0.72($0.015m)] / 67.5m = 16.1cps

FY2020: [+$11.320m + 0.72($0.010m) - $0.006m] / 67.5m = 16.8cps

FY2021: [+$15.621m +0.72($0.003m) + $0.251m] / 67.5m = 23.5cps

FY2022: [+$22.440m +0.72($0.018m) - $0.010m] / 67.5m = 33;2cps

Notes

1/ For FY2018, I have added back $21k of Forex losses.
2/ For FY2019, I have added back $15k of Forex losses.
3/ For FY2020, I have added back $10k of Forex losses and subtracted $6k from asset sales
4/ For FY2021, I have added back $3k of Forex losses and added back $251k of losses from disposal of Property, Plant & Equipment.
5/ For FY2022, I have added back $18k of Forex losses and subtracted $10k from asset sales

The eps trend is all one way, and that is up!

Conclusion: Pass Test

SNOOPY

[Snoopy]

ROE or 'Return on Equity' is calculated as follows:

ROE = Adjusted Net Profit / (Shareholder Equity - Equity Adjusted Asset Revaluations)

FY2016: -$8.252m / [$100.799m - (0.2944x $11.838m)] = -8.48%

FY2017: -$8,535m / [$138.888m - (0.3270x $11.838m)]= -6.32%

FY2018: -$3.768m / [$212.952m - 0.4068 x ($11.838m + $24.854m)] = -1.90%

FY2019: +$10.841m / [$227.988m - 0.4157x ($11.838m + $24.854m)] = +5.10%

FY2020: +$11.321m / [$311.323m - 0.4690x ($11.838m + $24.854m +$66.424m)] = +4.31%


Notes

1/ I have decided to adjust shareholder equity by removing the equity funded component of all historic asset revaluations. Asset revaluations are beneficial for shareholders. But since no shareholder funds were outlaid to obtain these revaluations (a good thing), it will artificially reduce the return on 'paid for' company equity - if I include the revaluations in my ROE calculations. To calculate the adjustment to make to:

1/ the shareholder equity for all historically revalued assets,
2/ for each year

I have taken the cumulative historically revalued totals and multiplied each total by the equity ratio of that year.

Although we are going in the right direction, at no time in the last five years has Enable got even close to our return on equity target.

Conclusion: Fail Test

ROE or 'Return on Equity' is calculated as follows:

ROE = Adjusted Net Profit / (Shareholder Equity - Equity Adjusted Asset Revaluations)


FY2018: -$3.768m / [$212.952m - 0.4068 x ($11.838m + $24.854m)] = -1.90%

FY2019: +$10.841m / [$227.988m - 0.4157x ($11.838m + $24.854m)] = +5.10%

FY2020: +$11.321m / [$311.323m - 0.4690x ($11.838m + $24.854m +$66.424m)] = +4.31%

FY2021: +$15,874m / [$357.410m - 0.4834x ($11.838m+$24.854m +$66.424m+$48.266m )] = +5.58%

FY2022: +$22.443m / [$359.850m - 0.4792x ($11.838m+$24.854m +$66.424m+$48.266m )] = +7.81%


Notes

1/ I have decided to adjust shareholder equity by removing the equity funded component of all historic asset revaluations. Asset revaluations are beneficial for shareholders. But since no shareholder funds were outlaid to obtain these revaluations (a good thing), it will artificially reduce the return on 'paid for' company equity - if I include the revaluations in my ROE calculations. To calculate the adjustment to make to:

1/ the shareholder equity for all historically revalued assets,
2/ for each year

I have taken the cumulative historically revalued totals and multiplied each total by the equity ratio of that year.

Although we are going in the right direction, at no time in the last five years has Enable got even close to our return on equity target.

Conclusion: Fail Test

SNOOPY

[Snoopy]

Net Profit Margin = Adjusted Net Profit After Tax / Working Revenues

FY2016: -$8.252m / [$63.370m - $43,144m -$8.538m] = -70.6%

FY2017: -$8,535m / [$36.272m - $8.781m]= -31.0%

FY2018: -$3.768m / [$48.473m - $6.628m]= -2.14%

FY2019: +$10.841m / [$58.678m - $2.486m] = +19.3%

FY2020: +$11.321m / [$76.985m - $2.000m] = +15.4%

Notes

1/ I have removed 'Contract Construction Revenue' of $43.144m when ENL was regarded as an associate to ESL, before ESL gained full control of it . From FY2017 onwards ESL took full control of ENL. This transaction occurred on 29th June 2016. Balance date for ESL/ENL is 30th June of each year.
2/ I have removed 'inventory' revenue from each year. 'Inventory' represents goods bought to be on sold to contractors for the building of the network.

The above trend is showing that as the fibre network finishes being built, and the take up improves, then profit margins for the business improves. That should not come as a surprise to anyone reading this. What might come as a surprise is to see the net profit margin dip in the last reported financial year. However, I see this as a 'rogue result' that does not devalue the underlying uptrend (yet).

Conclusion: Pass Test

Net Profit Margin = Adjusted Net Profit After Tax / Working Revenues


FY2018: -$3.768m / [$48.473m - $6.628m]= -2.14%

FY2019: +$10.841m / [$58.678m - $2.486m] = +19.3%

FY2020: +$11.321m / [$76.985m - $2.000m] = +15.4%

FY2021: +$15,874m / [$84.433m - $2.138m] = +19.3%

FY2022: +$22.443m / [$94.690m - $3.195m] = +24.2%


Notes

1/ I have removed 'inventory' revenue from each year. 'Inventory' represents goods bought to be on sold to contractors for the building of the network. The increase in inventory, despite the network being largely completed, is I believe likely to be related to a 'one in ten year' upgrade to the electronics that drive the network, the 'level 2' investment needed to ensure the network can fulfill future customer expectations like 'hyperfibre'.

The above trend is showing that as the fibre network finishes being built, and the take up improves, then profit margins for the business improves. That should not come as a surprise to anyone reading this. What might come as a surprise was to see the net profit margin dip over FY2020. However, this looks to be a 'rogue result' that has not derailed the underlying uptrend.

Conclusion: Pass Test

SNOOPY

[Snoopy]

Based on the Australian telecommunications network as it existed in 2009, NBN was expecting that some 70% of those existing customers, after the NBN was installed outside their gate, would eventually migrate to NBN. The remainder would likely eventually 'go fixed wireless', (not on a system run by NBN), or not have any fixed line at all.

I have been reading a few Telstra Annual reports of late, and wondered why they seemed so cool on 'fixed wireless'. This is in sharp contrast to the likes of Spark who are very keen to 'skip the wholesale payments to Chorus' and put Spark customers onto their in house fixed wireless plans. Now I know why. There is a clause in the procedure to be followed as nbn is rolled out in Australia.

From the document titled 'Vote In Favour' (of gradually handing over Telstra's fixed line network to nbn), relating to a special resolution to be put to the Telstra AGM way back in 2011. On page 91 of that document, corresponding to page 23 of the accompanying Grant Samuel report.

"Telstra is prohibited from promoting wireless services as a substitute for NBN fibre services for a period of 20 years but is able to market wireless services generally and against competitors."

That is a very interesting business practice restriction, which I have to admit I had no knowledge of until today. I am not sure how it is policed. I guess there is nothing to stop a customer initiated transition if someone in Australia specifically asks Telstra for fixed wireless. I bet Chorus in NZ are wishing they had a similar deal with Spark in this country!

SNOOPY

[warthog]

I have been reading a few Telstra Annual reports of late, and wondered why they seemed so cool on 'fixed wireless'. This is in sharp contrast to the likes of Spark who are very keen to 'skip the wholesale payments to Chorus' and put Spark customers onto their in house fixed wireless plans. Now I know why. There is a clause in the procedure to be followed as nbn is rolled out in Australia.

From the document titled 'Vote In Favour' (of gradually handing over Telstra's fixed line network to nbn), relating to a special resolution to be put to the Telstra AGM way back in 2011. On page 91 of that document, corresponding to page 23 of the accompanying Grant Samuel report.

"Telstra is prohibited from promoting wireless services as a substitute for NBN fibre services for a period of 20 years but is able to market wireless services generally and against competitors."

That is a very interesting business practice restriction, which I have to admit I had no knowledge of until today. I am not sure how it is policed. I guess there is nothing to stop a customer initiated transition if someone in Australia specifically asks Telstra for fixed wireless. I bet Chorus in NZ are wishing they had a similar deal with Spark in this country!

SNOOPY

In 2007 the hog hit up then Telecommunications Minister David Cunliffe for a discussion about how far NZ had fallen behind in terms of network speed and connectivity in general.

It went something like this.

Hog: NZ is quickly falling behind in terms of network connectivity and quality
Cunliffe: Everything will be wifi next year
Hog: No, it won't. You've been fooled by the wifi salesmen
Cunliffe: No I haven't. I'm signed up with Woosh and it's great
Hog: Er, ok.
Cunliffe: Wait and see. No more cables and wires and digging up the ground. All wifi to the Sky Tower and … progress!
Cunliffe: None of that old thinking about pipes in the ground. I appreciate your good intentions but you need to understand how technology is progressing
Hog: There are some applications that are not well-suited to wifi and…
Cunliffe: If you don't mind, I've got a plane to catch.

He even left the hog to pay for coffee.

True story.