Ominous note for Chorus

Proposed regulation inside the telecommunications market could push Chorus' operating earnings down by 10 per cent within the 2013 financial year and cause grief for international investors, say analysts.

The Commerce Commission is reviewing benchmark data that sets what wholesaler Chorus charges phone and internet retailers for access to parts of its copper network.

These charges are regulated and are linked, partly, to movements in prices internationally.

A draft decision from the commission was due out today, however a spokesperson says it's now more likely to pop out next week.

Analysis from Goldman Sachs suggests the commission decisions may lead to a discount of wholesale pricing by as much as 19 per cent.

Assuming the cost change comes into effect in July this year, this will push down Chorus' forecast earnings before interest, taxes, depreciation and amortisation (ebitda) by 10 per cent for the 2013 financial year, Goldman says.

The price drop can have much more of an impact on Chorus' ebitda within the 2014 financial year and notice it fall by 19 per cent, the firm estimates.

Paul Harrison at BT Funds Management said the worth review presented challenges to Chorus' board, particularly its dividend policy.

"This review won't be finalised inside the near future - it should take a couple of months - in order that must make it very difficult for the board to work around dividend policy going forward.

"The market is expecting it [Chorus] to have an affordable dividend yield to boot so i suspect that's why you're seeing people buying it," Harrison said.

While lower copper prices could possibly be positive for some retailers, internet companies would even be less inclined to get customers emigrate to new fibre services.

"In the event that they do pull back the pricing at the copper cables, it potentially opens up a niche between the cost you'll be charged for copper internet access versus the fibre and the very last thing you actually need to do in the mean time is to make the fibre less attractive," Harrison said.

Under a deal struck between the federal government and Telecom last year, its network arm Chorus became a separate publicly listed company to participate within the ultra-fast broadband scheme.

Chorus is now because of receive $929 million of public funding (that will be paid back) to roll out a fibre network in Auckland, the eastern and lower North Island and nearly all of the South Island by the top of 2019. The project aims to deliver consumers, businesses, schools and the health sector internet speeds of as much as 100 megabits per second.

After the split in November last year, a number of the regulatory burdens Telecom and Chorus faced were lifted. However, the possibility of unpolluted regulatory change and its impact on Chorus was unhelpful, Harrison said.

"We've just passed through the split. We've just removed most of the regulatory overhang in the event you like across the stock and to reintroduce it isn't helpful.

"Offshore investors don't love regulatory risk and especially in case you are looking to convince them to head buy some [shares] of Mighty River Power, they do not wish to see regulatory risk being a feature of our market."

Mighty River Power is the primary state-owned energy company planned to be partially privatised by the govt. .

Chorus shares closed steady yesterday at $3.41.

By Hamish Fletcher | Email Hamish