Is Chorus too big to fail?

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#929908 9-Nov-2013 12:08

Chorus doesn't have to make a profit when they are building up there business, they could even take a loss as it's not the now that's important but the future of the business and that future will be the UFB.
Take Xero, it's not been making heaps of dollars but has been growing it's business like mad, and one day they will slow their growth and the money will start coming in.

If you want to grow your business you need to invest in your business, Chorus has plenty of money to support this growth but they just don't want to spend it. I see there point, if they can make a 100 million a year extra then they might as well try it on, there is no harm in trying as it will only hurt their brand and since they are a monopoly that hurt won't amount to much.

Chorus needs to take a few pages from the book of Startups and just spend the money on their future.

If they did go broke, then it would be due to shoddy management and then it would be a good time for the Govt to Nationalise Chorus so we don't have to put up with a few more decades of these greedy games.

OH and I love this blog post about UFB Project: Terms of Tender It seems so true.

crackrdbycracku

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#929923 9-Nov-2013 12:39

Totally agree Chorus need to stop being so ME ME ME and think about the greater good of New Zealand as a whole. It isn't all about how much money they make.

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mattwnz

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#929925 9-Nov-2013 12:42

hellonearthisman: Chorus doesn't have to make a profit when they are building up there business, they could even take a loss as it's not the now that's important but the future of the business and that future will be the UFB.
Take Xero, it's not been making heaps of dollars but has been growing it's business like mad, and one day they will slow their growth and the money will start coming in.

If you want to grow your business you need to invest in your business, Chorus has plenty of money to support this growth but they just don't want to spend it. I see there point, if they can make a 100 million a year extra then they might as well try it on, there is no harm in trying as it will only hurt their brand and since they are a monopoly that hurt won't amount to much.

Chorus needs to take a few pages from the book of Startups and just spend the money on their future.

If they did go broke, then it would be due to shoddy management and then it would be a good time for the Govt to Nationalise Chorus so we don't have to put up with a few more decades of these greedy games.

OH and I love this blog post about UFB Project: Terms of Tender It seems so true.

Comparing Xero and chorus is like comparing apples with oranges. Xero is a growth company that is looking at becoming one of the world's largest companies when it comes to accounting cloud software. Chorus is more of utility stock that is rolling out a service and has very limited growth potential after the roll out is completed , and none beyond NZ. I don't see much future for chorus after the initial ufb work has been rolled out as they won't own the network. So their value is based on the returns they are making now while rolling out out. Xeros value is based on its future global potential. People buying utilities expect a regular modest return because they know it is not a growth stock, so their capital isn't going to growth much. Investors in Xero instead benefit from huge share value growth. So far more than 2000% in a few years so Xero investors have done very well. Unlike chorus investors who have had a few small dividend payments but they have seem their share value drop like a stone. If people saw growth potential in it, the share price would have risen a lot prior to this decision. But the share price has always hovered around the $3 mark

mattwnz

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#929926 9-Nov-2013 12:44

crackrdbycracku: Totally agree Chorus need to stop being so ME ME ME and think about the greater good of New Zealand as a whole. It isn't all about how much money they make.

You do realise that they are a company and not a charity. What you are describing is what a government should do.
Companies exist to make money.

Bobdn

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#929933 9-Nov-2013 13:20

hellonearthisman:
If they did go broke, then it would be due to shoddy management and then it would be a good time for the Govt to Nationalise Chorus so we don't have to put up with a few more decades of these greedy games.
.

Nationalise Chorus - could be like having the New Zealand Post Office running telephone exchanges all over again.

I have no money in Chorus so don't care one way or another but I do note that Chorus has already completed 20% of the rollout and are ahead of schedule. No other company in NZ is in a position to do this. By 2020 it will be complete (unless Chorus goes to the wall in which case it may never happen).

The owners of Chorus (who along with the NZ taxpayer have real skin in the game) deserve a really good rate of return for their investment especially having to contend with the nuttiness and risk of this sort of investing environment. Otherwise they might as well just keep their money in the bank.

mattwnz

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#929951 9-Nov-2013 13:28

Bobdn:
hellonearthisman:
If they did go broke, then it would be due to shoddy management and then it would be a good time for the Govt to Nationalise Chorus so we don't have to put up with a few more decades of these greedy games.
.

Nationalise Chorus - could be like having the New Zealand Post Office running telephone exchanges all over again.

I have no money in Chorus so don't care one way or another but I do note that Chorus has already completed 20% of the rollout and are ahead of schedule. No other company in NZ is in a position to do this. By 2020 it will be complete (unless Chorus goes to the wall in which case it may never happen).

The owners of Chorus (who along with the NZ taxpayer have real skin in the game) deserve a really good rate of return for their investment especially having to contend with the nuttiness and risk of this sort of investing environment. Otherwise they might as well just keep their money in the bank.

You've got the nail on the head. People have been saying investors should forgo dividends while they build the network. But after the roll out is complete the value of Chorus and is earnings will likely be a lot les, so there is no future benefit for investors to do that . So investors need to be making good returns now, as the value of the company in 2020 may be worth a lot less sure to all the installation work being completed. Not only that, but it is heavily regulated. Really the government should buy it back and investors should be well rewarded for the risk they have taken in this company.

hellonearthisman

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#929968 9-Nov-2013 13:47

So Chorus won a contract to build a Network that will compete with their own network and now they say that it will be difficult to building that new network. Seems like Chorus have a conflict of interests going on are are not happy with just being a network builder/servicing agent. If they fail to build the UFB for CFH then Chorus would win as their monopoly network would be the only shop on the block.

What would be so bad about Chorus being a PPP if they go broke?

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mattwnz

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#929973 9-Nov-2013 14:05

hellonearthisman: So Chorus won a contract to build a Network that will compete with their own network and now they say that it will be difficult to building that new network. Seems like Chorus have a conflict of interests going on are are not happy with just being a network builder/servicing agent. If they fail to build the UFB for CFH then Chorus would win as their monopoly network would be the only shop on the block.

What would be so bad about Chorus being a PPP if they go broke?

Isn't that one of the reasons why the pricing of the copper network heavily regulated.

crackrdbycracku

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#930045 9-Nov-2013 16:20

mattwnz:
crackrdbycracku: Totally agree Chorus need to stop being so ME ME ME and think about the greater good of New Zealand as a whole. It isn't all about how much money they make.

You do realise that they are a company and not a charity. What you are describing is what a government should do.
Companies exist to make money.

In one sense I was being sarcastic.

In another I think there is a serious point to be made in that government pays for stuff with our money. A government intervention means either a tax rise, very unlikely, or a funding cut to something else government do; like schools, hospitals or police.

This isn't a reason for government not to build the UFB but it is a reason to try to actually convince people, me included, that we need a UFB.

As far as I am aware government didn't fund that cellular networks we have. If there is a business case funding shouldn't be a problem because there will be a return.

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Bobdn

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#930059 9-Nov-2013 17:11

My understanding is that the Govt has already committed 1.3B to the rollout in the form of what is essentially an interest free loan. Chorus gets around $900M of this. The money is paid back eventually, after 2025? Note sure but I think so.

Apart from this loan, the UFB rollout is being funded from revenue from copper not from tax. The contribution by the Govt is important but it's not huge in comparison with what is invested by Chorus on a yearly basis - I think it's upwards of 650M per year. An adjustment in the copper price up would mean no tax payer money is necessary and Chorus could keep on borrowing to build the network. According to the Chorus website, they're already 1.5B in debt which is fine because they've got the copper revenue to keep up the payments on their loans.

And don't think that lower copper prices will flow through to consumers in the form of cheaper broadband. Telecom and Vodafone haven't given any indication that they'd pass on the savings to consumers - that's fine by me as a recent Telecom shareholder - I want more dividends and honestly the growth in telecom companies is pitiful at the moment and I'll take anything I can get. Notwithstanding my greed I still really I want a UFB network in NZ so I'm ok with higher copper prices.

mattwnz

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#930060 9-Nov-2013 17:17

Bobdn:

Apart from this loan, the UFB rollout is being funded from revenue from copper not from tax.

Yes, that is what I understand too. So if the comcom then reduces the amount they can charge, then chorus have reduced funds to build the network, and other ISPs benefit as they can increase their margins on copper connections, as they pocket some of the price savings.

The thing is that if any other company was building the network, they would need to charge more to build it, because they wouldn't have that copper network funding coming in.

I think there does need to be an independent review of it all, which I think is what they are now doing.

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#930222 10-Nov-2013 11:32

mattwnz:

I think there does need to be an independent review of it all, which I think is what they are now doing.

The independent review has just been finished: that's what Chorus is moaning about. The Government proposes to step in and overrule the decision of the independent regulator, thereby nullifying its independence.

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#930229 10-Nov-2013 11:48

SaltyNZ:
mattwnz:

I think there does need to be an independent review of it all, which I think is what they are now doing.

The independent review has just been finished: that's what Chorus is moaning about. The Government proposes to step in and overrule the decision of the independent regulator, thereby nullifying its independence.

While the review may have finished, whether or not it took section 18 2(A) of the act fully into consideration is something open to debate.

It also only factored in the lowest possible speed plans in the two countries used for the pricing (Sweden and Denmark) as the lowest speed plans were the only ones that offered similar characteristics to the 32kbps average user dimensioning of the UBA regulated product.

mattwnz

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#930230 10-Nov-2013 11:54

Probably shows the high risk of investing in NZ utilities with this amount of government regulation and interference. Something similar could potentially happen with the power companies that have been sold off

Lazarui

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#930282 10-Nov-2013 15:47

sbiddle:
SaltyNZ:
mattwnz:

I think there does need to be an independent review of it all, which I think is what they are now doing.

The independent review has just been finished: that's what Chorus is moaning about. The Government proposes to step in and overrule the decision of the independent regulator, thereby nullifying its independence.

While the review may have finished, whether or not it took section 18 2(A) of the act fully into consideration is something open to debate.

It also only factored in the lowest possible speed plans in the two countries used for the pricing (Sweden and Denmark) as the lowest speed plans were the only ones that offered similar characteristics to the 32kbps average user dimensioning of the UBA regulated product.

And here's that problem again, we're comparing two countries in the EU that have no real relationship to NZ except I believe their matching critiera was "Population density" or the cash rate or something equally odd. This comparision has always been a bit of a concern for me, we're pretty unique in our enviroment, regulation and density issues.

I would think (and maybe this is me being Naive) what would make more sense is if chorus's cost of upkeep/deployment of copper services was worked out and then a % markup was taken into account, holding it to a country that probably has a different market makeup (this is a broad sweeping idea that takes into account replacement of parts, cost of workers etc. as I have no idea what the cost of a worker in sweden is or the cost of replacement parts etc, do those countries give any type of finacial aid to these businesses?) than us is futile and irresponsible.

Also looking into it these countries have Fixed line operators that span multipile countries.... That'd gotta stuff the comparisons some.

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