CNU - Chorus

[Major von Tempsky]

Gravity will eventually win.

The gravitational pull of gross dividend yields consistently and long term much higher than bank deposit interest rates and unreliable finance companies deposit rates which have no capital gain. And backed by Government financing and guarantees and assistance.

Interesting tussle developing between the new cable, Chinese financed and part owned, between Australia and NZ, and the Southern Cross owners who have already slashed rates to render the return from this new cable rather less economic if indeed it is still positive.

[sharer]

Gravity will eventually win.

..
Interesting tussle developing between the new cable, Chinese financed and part owned, between Australia and NZ, and the Southern Cross owners who have already slashed rates to render the return from this new cable rather less economic if indeed it is still positive.

BTW, did TEL retain part ownership of Southern Cross (rather than Chorus)?

[Jim]

I think Telecom still own Southern Cross Cable as well as the mobile network

[buns]

Actually Vodafone dominate Auckland and Wellington is a mixed bag with average mobile data, and a range of fixed line suppliers mainly Telstra taking market share.

Mobile termination is heavily regulated, and killed telecom of late as it let in 2 degrees and abolished all of Telecom's prepay EBITDA.

As a result of LLU and regulation in general the only winners with Telco's these days are consumers. We demand newer and better products ($billions of capex) and don't want to pay much for it (less EBITDA) and don't want to be contracted (no switching costs).

[Major von Tempsky]

Néanmoins, il me parait que la gravité commence a gagner!

Nevertheless it seems that gravity is starting to win! :-) Look at the scoreboard! Look at the scoreboard!

Hey... a number of those comments above just don't apply to CNU....it seems that a number of punters still haven't got their heads around the difference between CNU and TEL.
(nor do they particularly apply to TEL, 2 degs has made greater inroads into Vodafone than TEL).

[blockhead]

When are announcements due for CNU regards half year, full year etc ?

[Major von Tempsky]

Hmmm, hoom, bit of a guessing game as CNU is so new.

But going by TEL there will be an announcement about 3 to 4 weeks before the first dividend is due for payment in June, presumably early June.
Last year TEL made an announcement on 6 May so that could be an interesting date. And again 19 November for the following dividend.

And for Tel I suppose 11 Feb adjusted to the nearest Friday, Tel usually only likes making dividend announcements and payments on Fridays, for Tel's next announcement.
That makes it 10th Feb or 17th Feb.

[Snoopy]

As a result of LLU and regulation in general the only winners with Telco's these days are consumers. We demand newer and better products ($billions of capex) and don't want to pay much for it (less EBITDA) and don't want to be contracted (no switching costs).

There was a shock to the CNU share price on Friday as it fell from $7.49 to $7.30, a drop of 2.5%. I thought this might be connected with going ex a 10.5 dividend but no, that happened on 15th March. What did happen on Friday was this:

http://nzx-prod-s7fsd7f98s.s3-websit...756/343108.pdf

I have to admit I find the flow on effects of these regulatory decisions, or potential regulatory decisions difficult to comprehend.

I think what this report is saying is that Chorus Assets have an underlying value of $5.5b to $6b. But due to proposed price controls, the value of the network will be reduced to only $4b because of regulatory constrained earnings. The report represents this as the company potentially having a $1.5b 'financial loss asset' on the books. If Chorus has to declare a $1.5 billion dollar loss because of regulatory price controls on the fibre network assets, it won't put the company at risk because it is "non cash". Nevertheless, such a loss will have to be shown 'on the books', and the interesting thing is how it flows through (Slide 5 of the presentation).

The copper network is immediately written down from $300m to zero. The phasing out of the copper network is not an unexpected thing to happen. But if Chorus need to write it down to zero, does this mean the remaining copper will be ripped up as soon as possible? If Chorus is 'revenue constrained', I think what they are saying is that they will no longer be able to afford any expenditure on the copper network. Ironically, the network being written down to zero will correspond with price controls being taken off copper. So are Chorus saying that there is no level of price access that will make copper viable, even in a phase out transition sense? IOW Chorus will be disbanding their 'fix-it' crews and allowing the copper network to fall apart?

Even the replacement fibre network is potentially being hit with a $200m write down for the glass wires alone. All in all it seems that regulatory pricing has a flow on effect to Chorus's assets that may particularly effect Chorus's copper customers going forwards. Have I got that right?

SNOOPY

[BlackPeter]

The copper network is immediately written down from $300m to zero. The phasing out of the copper network is not an unexpected thing to happen. But if Chorus need to write it down to zero, does this mean the remaining copper will be ripped up as soon as possible? If Chorus is 'revenue constrained', I think what they are saying is that they will no longer be able to afford any expenditure on the copper network. Ironically, the network being written down to zero will correspond with price controls being taken off copper. So are Chorus saying that there is no level of price access that will make copper viable, even in a phase out transition sense? IOW Chorus will be disbanding their 'fix-it' crews and allowing the copper network to fall apart?

Even the replacement fibre network is potentially being hit with a $200m write down for the glass wires alone. All in all it seems that regulatory pricing has a flow on effect to Chorus's assets that may particularly effect Chorus's copper customers going forwards. Have I got that right?

SNOOPY

It is my understanding that Chorus is obliged to maintain their copper network for any customer who does not have access to fibre, i.e. as long as the fibre rollout is not completed there will be parts of the copper network Chorus must maintain - and I suppose that these remaining parts of the copper network will as well generate revenue.

I assume as well that any price control is only taken off from copper for customers who have the option to go fibre ...

However - if & when the fibre roll out is completed and every customer had a chance to swap over to fibre than yes, I think your assessment is correct.

[Snoopy]

It is my understanding that Chorus is obliged to maintain their copper network for any customer who does not have access to fibre, i.e. as long as the fibre rollout is not completed there will be parts of the copper network Chorus must maintain - and I suppose that these remaining parts of the copper network will as well generate revenue.

I assume as well that any price control is only taken off from copper for customers who have the option to go fibre ...

From slide 25 of the November 17th presentation, reinforcing BlackPeter's points.

Copper –where fibre is not available:

1/ Copper remains regulated and TSO(*) applies
2/ Copper pricing capped at 2019 levels with CPI adjustments
3/ Commission required to review pricing framework no later than 31 December 2025

(*) TSO means 'Telecommunications Services Obligation': A universal service obligation under which Chorus must maintain certain coverage and service on the copper network.

SNOOPY