Commerce Commission final UBA Pricing

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#927672 5-Nov-2013 14:52

Interesting on a Comment made by Communications Minister Amy Adams at the FLINT Meeting on the 31st of October held by Chorus.

Amy Adams: Don't believe what the media says about UFB uptake the uptake rate is exactly where they expect it to be at this stage.

On a personal note, I have seen what happens when you rush the build of a network, prone to problems and prone to extra operational costs thus reducing profit.

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freitasm

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#927681 5-Nov-2013 15:14

From Orcon:

Orcon CEO Greg McAlister today reiterated the company’s commitment to lower broadband prices and promises to pass on any copper savings directly to consumers.
“We will cut broadband prices dollar for dollar in line with the regulatory costs we face. Any savings we see will be passed through directly to our customers.

“The Prime Minister and Amy Adams are both on record saying that lower copper prices won’t necessarily benefit consumers. I haven’t spoken to either of them so for them to comment on pricing structures probably reflects the conversations they have had with Chorus, but not the internet retailers. I can guarantee that Orcon customers will benefit.

“The lower the regulated price of broadband, the lower the price of Orcon broadband,” says McAlister.

McAlister says he believes assertions today by Chorus that it needs copper prices to stay artificially high in order to build the UFB network seem extremely convenient for Chorus and unfair to customers who will be stuck on copper to 2020 or beyond.

“We are New Zealand’s leading UFB retailer. Every month we sign up more people to the network than the month before. The migration to fibre is steadily building momentum.

“In fact, I predict that sometime next year we will be signing up more new customers to UFB each day than to the copper network. In the meantime, copper users shouldn’t be subsidising people who want fibre,” concludes McAlister.

NonprayingMantis

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#927694 5-Nov-2013 15:33

I wonder how they will do it, if indeed they do decide to pass it on 'dollar for dollar'

Only a certain % of their base will actually be on UBA to get the savings. A good chunk (maybe half?) will be on UCLL and so will see no saving from the UBA drop.

so will they pass on the drop averaged accross their entire base, making the average customer saving only about $5 rather than $10 (which will look bad from a PR point of view) or will they pass it on ONLY in their non-UCLL areas, creating a two tier system where customers in LLU areas pay MORE than customers in non-LLU areas.

networkn

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#927706 5-Nov-2013 15:50

mattwnz:
ubergeeknz: Gosh, watch Chorus playing the pauper card. Whatever will they do to make money now? They might have to restructure or run like any other competitive business! I mean, they only have an almost total monopoly on Copper and Fibre in the country.

(My personal opinion; not necessarily that of my employer)

They have to make a profit and a reasonable return for their shareholders though, just like any company. From what I have read, NZ is getting UFB at a very low price compared to the rest of the world, and I presume that the figures chorus used, where based on higher income per connection. So if the amount they are getting is going to be less, they have to find the money from somewhere to make up the shortfall. It sounds like you are suggesting that they lay off staff to save money, as that would be a major cost? But they need a lot of staff / contractors to do the roll out, and it is not as though they can really subcontract out to offshore call centres.

Perhaps if they want to make money they could make the P2P type Fibe that runs throughout Auckland CBD more price accessible for those companies who won't have UFB for another 2 years, and make money while the sun shines!

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#927712 5-Nov-2013 16:03

freitasm: From Orcon:

Orcon CEO Greg McAlister today reiterated the company’s commitment to lower broadband prices and promises to pass on any copper savings directly to consumers.
“We will cut broadband prices dollar for dollar in line with the regulatory costs we face. Any savings we see will be passed through directly to our customers.

“The Prime Minister and Amy Adams are both on record saying that lower copper prices won’t necessarily benefit consumers. I haven’t spoken to either of them so for them to comment on pricing structures probably reflects the conversations they have had with Chorus, but not the internet retailers. I can guarantee that Orcon customers will benefit.

“The lower the regulated price of broadband, the lower the price of Orcon broadband,” says McAlister.

McAlister says he believes assertions today by Chorus that it needs copper prices to stay artificially high in order to build the UFB network seem extremely convenient for Chorus and unfair to customers who will be stuck on copper to 2020 or beyond.

“We are New Zealand’s leading UFB retailer. Every month we sign up more people to the network than the month before. The migration to fibre is steadily building momentum.

“In fact, I predict that sometime next year we will be signing up more new customers to UFB each day than to the copper network. In the meantime, copper users shouldn’t be subsidising people who want fibre,” concludes McAlister.

Nice sentiment, but this will only become real for most of NZ if Telecom and Vodafone, who are dominant, actually do anything and adjust the prices.... which I expect they won't, given both have just recently released new pricing.

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#927730 5-Nov-2013 16:13

antoniosk:
Nice sentiment, but this will only become real for most of NZ if Telecom and Vodafone, who are dominant, actually do anything and adjust the prices.... which I expect they won't, given both have just recently released new pricing.

That would be Vodafone's and Telecoms down fall this would open a good optionality for the smaller RSP's to lower costs and start taking some of the larger Telco's customers.

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#927731 5-Nov-2013 16:16

Nebbie:
antoniosk:
Nice sentiment, but this will only become real for most of NZ if Telecom and Vodafone, who are dominant, actually do anything and adjust the prices.... which I expect they won't, given both have just recently released new pricing.

That would be Vodafone's and Telecoms down fall this would open a good optionality for the smaller RSP's to lower costs and start taking some of the larger Telco's customers.

A lot of the smaller RSP's are lacking competitveness in other areas.. IE You can't zero rate calls from your mobile to your landlines, smaller players usually don't (can't) offer analog lines etc..

I am a big fan of smaller RSP's and refer a fair amount of business to them, however, it's a double edged sword.

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nitrotech

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#927732 5-Nov-2013 16:17

The Herald are once again top of their game showing a Tauranga picture (Ultra Fast Fibre / Non Chorus area) in their article about chorus http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11151658

NonprayingMantis

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#927733 5-Nov-2013 16:17

antoniosk:
freitasm: From Orcon:

Orcon CEO Greg McAlister today reiterated the company’s commitment to lower broadband prices and promises to pass on any copper savings directly to consumers.
“We will cut broadband prices dollar for dollar in line with the regulatory costs we face. Any savings we see will be passed through directly to our customers.

“The Prime Minister and Amy Adams are both on record saying that lower copper prices won’t necessarily benefit consumers. I haven’t spoken to either of them so for them to comment on pricing structures probably reflects the conversations they have had with Chorus, but not the internet retailers. I can guarantee that Orcon customers will benefit.

“The lower the regulated price of broadband, the lower the price of Orcon broadband,” says McAlister.

McAlister says he believes assertions today by Chorus that it needs copper prices to stay artificially high in order to build the UFB network seem extremely convenient for Chorus and unfair to customers who will be stuck on copper to 2020 or beyond.

“We are New Zealand’s leading UFB retailer. Every month we sign up more people to the network than the month before. The migration to fibre is steadily building momentum.

“In fact, I predict that sometime next year we will be signing up more new customers to UFB each day than to the copper network. In the meantime, copper users shouldn’t be subsidising people who want fibre,” concludes McAlister.

Nice sentiment, but this will only become real for most of NZ if Telecom and Vodafone, who are dominant, actually do anything and adjust the prices.... which I expect they won't, given both have just recently released new pricing.

it could be argued they are only dominant because they maintain similar prices to the smaller guys.

If Orcon and Slingshot both push through $5-10 price drops, VF/Telecom will have to respond somehow.

ubergeeknz

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#927735 5-Nov-2013 16:23

mattwnz:
ubergeeknz: Gosh, watch Chorus playing the pauper card. Whatever will they do to make money now? They might have to restructure or run like any other competitive business! I mean, they only have an almost total monopoly on Copper and Fibre in the country.

(My personal opinion; not necessarily that of my employer)

They have to make a profit and a reasonable return for their shareholders though, just like any company. From what I have read, NZ is getting UFB at a very low price compared to the rest of the world, and I presume that the figures chorus used, where based on higher income per connection. So if the amount they are getting is going to be less, they have to find the money from somewhere to make up the shortfall. It sounds like you are suggesting that they lay off staff to save money, as that would be a major cost? But they need a lot of staff / contractors to do the roll out, and it is not as though they can really subcontract out to offshore call centres.

I'm no accountant but if I look at the figures for a second and make some rough calculations, it still seems like Chorus is perfectly viable.

Their EBITDA for YE June 2013 was $663M on $1,057M operating revenue, that's about 63%.

The impact of halving "enhanced copper" revenue is in the order of $100M (the revenue for 2013 was $215M). So let's say if they have a similar year it's 563M on 957M - that's still 58%

Given the benchmark internationally for telecoms operators is in the region of 40%, I'd say that does not make them unprofitable. And this does not factor in the additional income they will get as they roll out more UFB.

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#927738 5-Nov-2013 16:29

ubergeeknz:
mattwnz:
ubergeeknz: Gosh, watch Chorus playing the pauper card. Whatever will they do to make money now? They might have to restructure or run like any other competitive business! I mean, they only have an almost total monopoly on Copper and Fibre in the country.

(My personal opinion; not necessarily that of my employer)

They have to make a profit and a reasonable return for their shareholders though, just like any company. From what I have read, NZ is getting UFB at a very low price compared to the rest of the world, and I presume that the figures chorus used, where based on higher income per connection. So if the amount they are getting is going to be less, they have to find the money from somewhere to make up the shortfall. It sounds like you are suggesting that they lay off staff to save money, as that would be a major cost? But they need a lot of staff / contractors to do the roll out, and it is not as though they can really subcontract out to offshore call centres.

I'm no accountant but if I look at the figures for a second and make some rough calculations, it still seems like Chorus is perfectly viable.

Their EBITDA for YE June 2013 was $663M on $1,057M operating revenue, that's about 63%.

The impact of halving "enhanced copper" revenue is in the order of $100M (the revenue for 2013 was $215M). So let's say if they have a similar year it's 563M on 957M - that's still 58%

Given the benchmark internationally for telecoms operators is in the region of 40%, I'd say that does not make them unprofitable. And this does not factor in the additional income they will get as they roll out more UFB.

Is it $100M a year or 100M over a period of years?

ubergeeknz

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#927742 5-Nov-2013 16:39

networkn:
ubergeeknz:
mattwnz:
ubergeeknz: Gosh, watch Chorus playing the pauper card. Whatever will they do to make money now? They might have to restructure or run like any other competitive business! I mean, they only have an almost total monopoly on Copper and Fibre in the country.

(My personal opinion; not necessarily that of my employer)

They have to make a profit and a reasonable return for their shareholders though, just like any company. From what I have read, NZ is getting UFB at a very low price compared to the rest of the world, and I presume that the figures chorus used, where based on higher income per connection. So if the amount they are getting is going to be less, they have to find the money from somewhere to make up the shortfall. It sounds like you are suggesting that they lay off staff to save money, as that would be a major cost? But they need a lot of staff / contractors to do the roll out, and it is not as though they can really subcontract out to offshore call centres.

I'm no accountant but if I look at the figures for a second and make some rough calculations, it still seems like Chorus is perfectly viable.

Their EBITDA for YE June 2013 was $663M on $1,057M operating revenue, that's about 63%.

The impact of halving "enhanced copper" revenue is in the order of $100M (the revenue for 2013 was $215M). So let's say if they have a similar year it's 563M on 957M - that's still 58%

Given the benchmark internationally for telecoms operators is in the region of 40%, I'd say that does not make them unprofitable. And this does not factor in the additional income they will get as they roll out more UFB.

Is it $100M a year or 100M over a period of years?

$100M a year - the thing is a cut in price for UBA has always been planned. Chorus are the only ones who are surprised, if you actually believe their "woe is me" press release.

NonprayingMantis

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#927743 5-Nov-2013 16:40

ubergeeknz:
mattwnz:
ubergeeknz: Gosh, watch Chorus playing the pauper card. Whatever will they do to make money now? They might have to restructure or run like any other competitive business! I mean, they only have an almost total monopoly on Copper and Fibre in the country.

(My personal opinion; not necessarily that of my employer)

They have to make a profit and a reasonable return for their shareholders though, just like any company. From what I have read, NZ is getting UFB at a very low price compared to the rest of the world, and I presume that the figures chorus used, where based on higher income per connection. So if the amount they are getting is going to be less, they have to find the money from somewhere to make up the shortfall. It sounds like you are suggesting that they lay off staff to save money, as that would be a major cost? But they need a lot of staff / contractors to do the roll out, and it is not as though they can really subcontract out to offshore call centres.

I'm no accountant but if I look at the figures for a second and make some rough calculations, it still seems like Chorus is perfectly viable.

Their EBITDA for YE June 2013 was $663M on $1,057M operating revenue, that's about 63%.

The impact of halving "enhanced copper" revenue is in the order of $100M (the revenue for 2013 was $215M). So let's say if they have a similar year it's 563M on 957M - that's still 58%

Given the benchmark internationally for telecoms operators is in the region of 40%, I'd say that does not make them unprofitable. And this does not factor in the additional income they will get as they roll out more UFB.

bear in mind that they will be getting a whole lot of incremental revenue from UFB as it rolls out, since UFB is mostly just replacing existing copper and the revenue will be largely the same.

you cant really benchmark them against international telcos since those guys are a mix of high margin (but also capital intensive) infrstructure and low margin (but lower capex) retail.

Coil

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#927760 5-Nov-2013 17:39

I dread to see the consequences of such a cut for Chorus.

It will reflect somewhere. I would hate to see technicians lose their jobs and faults start to cost just to log it. How much damage would that do..

I am still not zoned for Fibre so if it gets delayed further thank the monkeys up top.

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#928058 6-Nov-2013 11:20

NonprayingMantis: bear in mind that they will be getting a whole lot of incremental revenue from UFB as it rolls out, since UFB is mostly just replacing existing copper and the revenue will be largely the same.

you cant really benchmark them against international telcos since those guys are a mix of high margin (but also capital intensive) infrastructure and low margin (but lower capex) retail.

Chorus will get revenue but the cost to install New installs especially large MDU's they will not make a profit for several years.
Remember the government intensive doesn't cover 100% of the installation cost.

Personally I don't believe the UFB roll-out is under threat of going under not even the slightest, Chorus is not happy that this year their profit margins will be lower than another year and shareholders wont be happy with that.

If I was an international investor in chorus I would not give two Toots about the welfare of NZ Internet all I would care about is profit margins and lowering UBA costs is a going to make a bit hit on profits this year as UFB is still a large chunk of revenue for chorus.

It appears the CCM is not happy with the speed of the roll-out and is using this crude way to attempt to force chorus to speed up...

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