11 Dec 2013

Chorus looking at cutting spending

8:44 pm on 11 December 2013

Chorus may downgrade its services as part of a drive to cut all discretionary spending.

In a letter to shareholders, Chorus chair Sue Sheldon says the company would accept the suggestion that it is currently over-delivering.

Radio New Zealand's business editor reports the letter says there are suggestions that the telephone lines company has been providing significantly greater value to its customers than is strictly required.

Ms Sheldon says it is likely Chorus will need to cut all discretionary activity, including growth-related capital investment.

It will also have to re-price most of its commercial services and generally manage for cash until the Commerce Commission completes a review of its pricing decisions.

Using benchmarking against other countries, from next December, the commission has set the wholesale price of access to the Chorus copper network at $23. 52 per month and the price of broadband access at $10.92.

The latter is about half what Chorus is currently charging.

Ms Sheldon says Chorus is confident the review of what these services actually cost, which could take more than two years, could mean Chorus could charge current or even higher prices.

But Chorus chief executive Mark Ratcliffe is rejecting any suggestion it may downgrade its copper lines network despite also saying it is over-delivering.

He says prices for some services will have to go up.

Mr Ratcliffe told Checkpoint that regulated products tend to have very tight specifications around how they should be delivered.

But he says Chorus has been providing the broadband service to its retail service providers at a level that's significantly above those specifications.

Copper wire voice price to be same as other charges

The Commerce Commission plans to set the wholesale price of phone companies using Chorus copper lines to provide low frequency voice services at the same price it has already set for most other uses of the copper lines.

The commission set the price of the latter, known as the unbundled copper local loop, at $23.52 per month in December last year.

The commission says the Telecommunications Act requires the prices of both these parts of the copper loop to be the same.

But Chorus says the price which has been set, is disconnected from real costs.