24 May 2012

High early costs for ultra-fast broadband rollout

9:36 pm on 24 May 2012

Chorus is confident it can overcome high early costs associated with rolling out a high speed fibre network.

The company split from Telecom last year and is taking a leading role in building the $1.5 billion Ultra Fast Broadband network in towns and cities, and the $300 million broadband upgrade in rural areas.

Chorus says up to 42,000 premises should be hooked up to the new fibre network by the end of June, with another 12,000 underway or close to completion.

But so far it's cost about $3300 to lay the cable past each premises, nearly twice as much as the $1700 - $2000 budgeted across the whole project.

Chief financial officer Andrew Carroll told investors on Wednesday that some mistakes had been made due to the speedy start made on the project.

But he says the average cost has been inflated by deployments to big, complex, priority customers such as businesses, schools and hospitals.

Mr Carroll says around the middle of the programme the priority premises will be completed which will reduce the average cost per premises, and in the second half of the programme the fibre factory is expected to be at its most efficient.

He says Chorus is confident the average cost of laying out the fibre will drop in the same way it did when upgrading broadband functionality on the old copper network.

Mr Carroll says the risk of a cost blow-out is not being shared with building partners.

"We back ourselves to achieve efficiencies through the process, so we're still in the mode that we think we can get an awful lot better at this, so rather than have back to back arrangements with our build partners, we're better to take that risk ourselves, strive for the efficiencies and then we are the ones that recover the gains in the long run."

Other challenge

Chorus chief executive Mark Ratcliffe told investors the fibre roll-out is one of two challenges facing the company.

The other is a draft recommendation from the Commerce Commission that the price of unbundling copper rural phone lines be slashed.

Mr Ratcliffe says the commission's recommendation distracts the industry and makes it focus on copper rather than the fibre future.

He says it adds even more complexity to investment decisions faced by Chorus customers as they plan transitions from copper to fibre.

Mr Ratcliffe says Chorus will be making strong submissions to that effect.

The company will announce its first set of financial results, since splitting from Telecom, in August.