NZ's Chorus rejects regulator demand for investment cuts

A 16% cut in total spending proposed by New Zealand regulator would lead to reduced services and higher long-term costs, Chorus warns.

Robert Clark, Contributing Editor, Special to Light Reading

July 4, 2024

2 Min Read
Fiber optic cable underground.
(Source: dpa picture alliance/Alamy Stock Photo)

New Zealand fiber wholesaler Chorus and regulator the Commerce Commission are no closer to agreement over the telco's four-year spending plan.

Chorus, the dominant fiber network provider, has rejected a demand from the commission to shave 16% off capex and opex over the next regulatory period, which begins next January.

Chorus had already taken out 188 million New Zealand dollars (US$115 million) in costs in its mandatory plan, submitted in February, but the commission has told it to cut another NZ$303 million ($185 million).

It seems unusual that a regulator should seek to restrict network investment, but it is part of the New Zealand regulatory regime that ComCom (as it is known) must approve spending plans by Chorus and the three smaller fiber wholesalers.

"We want to see ongoing investment in world-class infrastructure but are conscious that any expenditure we approve is ultimately borne by Kiwi consumers in the prices they pay," telecom commissioner Tristan Gilbertson said.

The commission said Chorus had not demonstrated that its proposed budget was "prudent and efficient."

Need to seriously reconsider

"Chorus has not satisfied this expenditure test in a number of areas, resulting in a reduced level of approved expenditure in the draft decision," it said.

ComCom has proposed Chorus cap its spending at NZ$1.6 billion ($979 million) over the next four years, with NZ$986 million ($603 million) in capex and NZ$608 million ($372 million) in opex.

In its response, filed in June, Chorus said the cuts would require it to find cost savings of around NZ$25 million ($15 million) now, and take out a further NZ$15 million ($9.2 million) in costs over the four-year term.

It said the company would "need to seriously reconsider the activities we undertake and the range of products and services we provide."

The forced savings would lead to "inefficient cost cutting" that would drive up longer-term supply risk and whole-of-life costs, it added.  

ComCom says it's prepared to change its recommendations if Chorus provides further evidence to support its budget plans.

Unsurprisingly, the regulator has the backing of the retail operators.

The biggest telco, Spark, said it endorses the plan to offer Chorus incentives only for the first year of the budget period, with the wholesaler able to apply for further capex incentives on a case by case basis in later years.

Spark also castigated Chorus for what it says are errors in the financial model and a "lack of explanation for key assumptions."

The two smaller telcos, One NZ and 2degrees, are calling for further cuts in Chorus' marketing spend, which they claim exceeds its opex cost.

The commission said it would make its final decision on Chorus' spending in Q3 2024.

About the Author(s)

Robert Clark

Contributing Editor, Special to Light Reading

Robert Clark is an independent technology editor and researcher based in Hong Kong. In addition to contributing to Light Reading, he also has his own blog,  Electric Speech (http://www.electricspeech.com). 

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