Commerce Commission releases draft valuation of Chorus’ fibre network

19 Aug 2021

New Zealand’s Commerce Commission has released a draft decision on the value of Chorus’ fibre network, built in partnership with government-owned Crown Infrastructure Partners (previously Crown Fibre Holdings) under the Ultra-Fast Broadband programme. The value of the network – or Chorus’ initial regulatory asset base (RAB) – is a key building block in determining the revenues Chorus will be able to earn over the first years of the new regulatory regime starting 1 January 2022.

Under the Telecommunications Act, the initial RAB includes the assets wholesale fixed line provider Chorus uses to supply fibre broadband services, as well as a Financial Loss Asset (FLA) to compensate Chorus for losses incurred in rolling out the fibre network ahead of demand. Following a consultation, the Commission has proposed reducing the NZD5.507 billion (USD3.801 billion) initial RAB submitted by Chorus in March 2021 by around NZD160 million, due largely to a different view on the allocation of certain costs to Chorus’ fibre network. This reduction has been partially offset by changes made to improve the approach to calculating Chorus’ FLA, which adds back around NZD80 million. The net result is a proposed reduction of Chorus’ initial RAB estimate by NZD80 million to a total of NZD5.427 billion.

Telecommunications Commissioner Tristan Gilbertson commented: ‘While we mostly agreed with Chorus’ proposed asset valuations, we considered that some infrastructure and overhead costs that have been allocated to its fibre network should more appropriately be allocated to its copper network and other parts of its business. These types of costs should not be passed on to fibre consumers.’

The Commission is seeking feedback on its draft decision from Chorus and other stakeholders. It will make its final decision on Chorus’ initial RAB next year, when all necessary information is available, but will set a transitional initial RAB value in December using currently available information.