Spark affirms earnings guidance after regulator keeps wholesale pricing largely unchanged

Spark New Zealand, the country’s biggest telecommunications provider, has affirmed annual guidance after the Commerce Commission today said regulated pricing on Chorus’s copper line network would largely be unchanged.

The Auckland-based company, which is Chorus’s biggest customer, said 2015 financial guidance for low single digit growth in earnings before interest, tax, depreciation and amortisation and for a low single digit decline in revenue was unchanged. The company welcomed the regulator’s split decision not to backdate the new pricing, and warned if the commission changes its mind that will “create more upward pressure on retail prices.” Spark is scheduled to report annual earnings on Aug. 21.

The regulator proposes setting the total price Chorus can charge for wholesale broadband services at an average $38.43 per month over the next five years, largely in line with the $38.39 price established in the benchmarking process which came into effect on Dec. 1.

“While the commission has slightly reduced first-year charges from its earlier draft position, this decision (if finalised) would still mean wholesale line charges in New Zealand are around 70 percent higher than comparable countries,” chief executive Simon Moutter said. “Around half the monthly cost for broadband goes into line charges, so the Commerce Commission’s decision has a big impact on what consumers and businesses pay for their broadband.”

Spark hiked retail prices earlier this year in response to the commission’s ruling to set Chorus’s prices using international benchmarks, having previously said it had already cut prices in anticipation of lower wholesale costs.

The company today said it estimates copper input costs will increase by about $42 million on an annualised basis from the regulator’s earlier ruling.

The Commerce Commission embarked on a more fulsome review of Chorus’s pricing, known as a final pricing principle, after the network operator disputed the findings of the initial pricing principle, which used international benchmarks to set the price.

Telecommunications commissioner Stephen Gale today said while the modelled price was similar to that found using international benchmarks, “New Zealand’s local loop network is unique” and it was “clear that our dispersed population is a significant cost factor.”

Spark had been rallying its customers to lobby the commission for cheaper wholesale prices, something the regulator welcomed, while noting it reiterated the company’s submission over the “apparent disparity between charges in New Zealand and in Europe.”

The company’s shares last traded at $2.785, and have dropped 11 percent this year.


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