Chorus sings a Dirge

Written By: - Date published: 7:42 am, December 4th, 2013 - 36 comments
Categories: Economy, telecommunications - Tags: ,

I welcomed Amy Adams independent review of Chorus’s financial claims in response to Chorus’s sad song. Not something I should say in a left leaning site but it does show an increasing awareness from government of big business endeavours to manipulate NZ to their advantage.

I felt that the Minister had a gun to her head when Chorus started threatening all sorts of dire consequences should the copper pricing not be fixed soon. It makes me nervous and suspicious when business starts threatening the government and making noises about urgency particularly when the decision has long running consequences.

Given that Chorus knew about the review of copper pricing did they work out what they thought it might be and make plans accordingly or have they assumed they could convince the regulator to give them the price they wanted and then proceeded to get themselves into a situation that meant that a change in the price would result in them going broke?

Chorus must have made an assumption about a pricing range. If they assumed the same or a single price then that is poor. They would then have made business plans based on that, and took a risk that pricing would be in that range. The question is, was that a fair pricing range assumption or was a mistake made? It is looking like a mistake was made then they’ll have to make other plans or trigger the contingency plans if they exist. Things do not always go the way you plan.

Recent developments have seen a plunging share price; please explain questions being issued by the ASX; political support for government intervention evaporating; assurances that Chorus would not walk away from the contract when it was suggested they could and changes in tone from the management. See this article (Not everyone buys the claim Chorus could walk). The share price fall sounds like the end of the world if you listen to some commentary. I’d make the following points.

  1. The explanation for the share price fall is simple and obvious. Investors/speculators drove the share price up on assumptions of a certain copper price. They got that price assumption wrong. The people with a problem with the current price are speculators on the wrong side of the fluctuation. Investors may need to do the sums again as assumptions may prove to be wrong and will need to re-evaluate what they think it is worth once a decision is made. The fluctuations only matter to speculators and other parasites in the market. Since when does a market regulator need to pander to them? If the organisation generates some value the price will go up again but that value better not come via a government hand-out to a private company whose management has made some erroneous assumptions.
  2. Damn right they will not pull out of the contract. As for renegotiating I am not sure I have heard a very good case for that yet. We’ll wait and see what the review says about the need financially. I’m hoping that the government will not need to bail them out as that will not be good. Some very serious questions will need answering if that occurs.
  3. I’ve already said that reviewing of Choruses finances was a good move when Chorus started to make all sorts of disastrous consequential threats if they did not get the pricing they wanted. But also well done on observers for calling them out. Chorus should get back to the work delivering on the contract. Stop playing political, legal and financial games and wasting everyone’s time and money. Focus on the job of providing the infrastructure NZ needs to become an advanced economy at a fair and reasonable price. Do that and the share price will look after itself.

Flip

36 comments on “Chorus sings a Dirge”

  1. ghostwhowalksnz 1

    Im reading this from a desktop which is tethered to a smartphone.

    The population using the copper broadband lines is falling anyway ( a main reason why Telecom offloaded Chorus in the first place, like they did with Yellow Pages before that )

    My next upgrade will be to the so called 4G broadband

    There is a good analysis of Clueless Chorus by there sharemarket correspondent “Chalkie” in Stuff this morning

    http://www.stuff.co.nz/business/opinion-analysis/9472236/Debt-at-core-of-Choruss-fiscal-fragility

    He has read the Telecom-Chorus demerger document and found some warning flags.

    : “There is a risk that the regulator will set prices that do not provide New Chorus with an adequate return on its assets.

    “In addition, if the prices that the regulator sets for copper-based products and services are significantly below the prices for comparable fibre-based services, fibre uptake may be negatively affected.”

    And so it came to pass. You can’t say Chorus didn’t try to warn everyone says Chalkie

    In addition Chalkie points out Chorus merely owns the local infrastucture , the long distance money making lines are owned by Telecom and Vodafone separately

    • Tim 1.1

      God I just lerv the double standards 🙂
      A “foaming fund manager” in that article screaming THEFT!
      Not so though apparently when publicly owned assets are undervalued and flogged off for private gain. Rodders Hide was a good one for screaming “THEFT” as well.

      The good thing is that me thinks Joe and Josephine Public are getting heartily sick of bailing out privatised assets over the years – whether they be banks, Air NZ or Wisconsin Rail.

      Love it!

    • infused 1.2

      The copper loop fell away ages ago. I’ve had voip at home for at-least 5-6 years, same for work. I use tcl cable at home and fibre at work.

      I hope your not saying we should just jump on 4G or something.

      • ghostwhowalksnz 1.2.1

        Well if you mean the standard voice network using copper lines, in local streets yes you are right.

        But its still being used for the majority of broadband for private and commercial users.

        Im not saying 3G or 4G is for everyone, but it fits my internet profile which doesnt involve downloading large files, music or video or otherwise. Its the bane of standard broadband in the evenings which is why even 3G is faster during peak times

      • Tim 1.2.2

        Had Voip 12 years ago via a link – line of sight across town to a commercial ‘enterprise (since relinquished).
        What amuses me (especially having a hassle atm during a cutover from Vodafone) is the manner in which none of the Telcos are interested in basic preventative maintenance.
        Couldn’t cutover to Vodafone 12 months ago to naked DSL – not enough cable pairs despite the process being initiated. Fuck all investment had been made in maintaining the copper ‘local loop’ (and it seems they’d only just gotten rid of those 0+1?? units – this is within a mile of one of Wellington’s largest exchanges.
        Persevered with TelstraClear’s cable network – despite frequent outages including DNS servers, conduit carrying their infrastructure flapping around lamp posts, promotions designed to capture new customers at the expense of long term customers – i.e. since Clear Comms began….., holes dug in pathways approximately 10 years ago in order to reticulate but never having been remedied.

        and now Chorus ffs!

        I get amused when the likes of Hide/Douglas et al rave on about Post Office inefficiencies and having to wait months for a telephone.
        As far as consumer CHOOOOOICE goes – not a great deal has changed, other than there are more “commercial entities” lining up to clip the ticket, workmanship (such as basic cable management techniques) is pretty bloody shoddy, and an industry in disputes resolution has grown up.
        Progress? I think not

    • grumpy 1.3

      Chalkie is a classic. The name has been used by a number of commentators over the years – all excellent.

  2. vto 2

    Mr Flip… ” it does show an increasing awareness from government of big business endeavours to manipulate NZ to their advantage.”

    I disagree.

    What it shows is an increasing awareness from this government that the people have noticed its welfare and handouts to big business.

    • Draco T Bastard 2.1

      +1

    • Flip 2.2

      Quite so. 🙂

      If they cannot be stopped at least they’ll be a bit more thoughtful. It may slow them down a bit so stop us getting deeper in the hole. Perhaps next time (if there is one) the pressure will result in better outcomes. Still we should try to stop it.

    • tc 2.3

      +1, Big business owns this gov’t and is indulging in PR posturing in an attempt to make it look as if there’s this separation.

      There isn’t, it’s puppet and puppeteer which sunlight and some decent journalism would have shown years ago. Rio Tinto, Mediawonks, Warner bros, SCF, the list grows with every cycle.

      If Joyce/Key had of run an impartial hands off UFB tender, kept Reynolds at arms length and not suggested to other players to ‘bid’ nudge nudge wink wink they wouldn’t be having their little game exposed now.

    • Flip 2.4

      Quite so. 🙂

      I did respond with what I thought was some eloquent thoughts but they were lost in cyberspace. Grrrrr!!!!! Probably all the fiddling with the copper. Here goes again.

      : “There is a risk that the regulator will set prices that do not provide New Chorus with an adequate return on its assets.

      Yep. Is is called risk for a reason. It may eventuate. I would think that the assets have more than paid for themselves over time and given a good return. Anything returned now should be used for maintenance, decommissioning and profit.

      “In addition, if the prices that the regulator sets for copper-based products and services are significantly below the prices for comparable fibre-based services, fibre uptake may be negatively affected.”

      Once again yep, states the obvious. The fibre service will have to be competitive with copper and offer more value than it to be taken up. The value needs to be articulated well by the providers. Chorus and Co have work to do. Welcome to the world of business.

      Wireless services does not have the capacity that fibre provides for the types of services of the future. Good for mobile applications where it has coverage.

      All three will have a place in the future economy I suspect.

      • lprent 2.4.1

        Added a trap for really dumb spambots at the .htaccess when they try to leave comments. It looks like it has quieted down the load considerably.

  3. Flip 3

    : “There is a risk that the regulator will set prices that do not provide New Chorus with an adequate return on its assets.

    Yep. All about risk. Risks can eventuate which is why it is called risk. The assets should have already paid for themselves and thus given a return several times over. I would say anything gained from them now is for maintenance, decommissioning and profit.

    “In addition, if the prices that the regulator sets for copper-based products and services are significantly below the prices for comparable fibre-based services, fibre uptake may be negatively affected.”

    Stating the obvious. Fibre prices will need to be competitively priced and offer more value than the copper service. I’m pretty sure it can. It is possible that copper can service a niche market of some sort.

    Wireless networks provide the benefit of mobility. I’m not that technical but it has limitations that fibre does not.

    I watched an attempted video conference on the Daily Blog with David Cunliffe, Martyn Bradbury and Selwyn Manning. Martyn eventually could not participate because he relied on wireless.

    All the infrastructure can exist depending on the need and fit.

    I’d question that a private company should run a monopoly infrastructure despite the prevailing orthodoxy of privatise everything.

    • Draco T Bastard 3.1

      I’d question that a private company should run a monopoly infrastructure despite the prevailing orthodoxy of privatise everything.

      A private company should never own/run a monopoly even with regulators as the risk of abuse is far too great.

  4. Lanthanide 4

    My BF’s in Oz for a work trip at the moment. He said big news over there at the moment is Rio Tinto shutting down an alumina refinery in NT unless the government gave them concessions.

    The Oz government didn’t blink.

    http://www.smh.com.au/business/rio-tinto-pulls-out-of-gove-and-1000-jobs-go-with-it-20131129-2yh6p.html

    • ghostwhowalksnz 4.1

      Yes they did offer them ‘assistance’ but it wasnt enough.

      Part of the problem was the power supply was based on burning oil, a prohibitively expensive method.

      As well it didnt involve the electorate of the Deputy PM.

    • tc 4.2

      Mining has lost some of its gloss across the ditch, folks are waking up to the rudd mining tax being a good idea that the industry.minerals council assisted by the liberals watered down to effectively nothing under Gillard.

      Abbott and co are now busy considering buying back the copper telstrta network, a stake in qantas and how to not have the education sector and liberal state education ministers lynch them after rejecting Gonski funding reforms and then trying to expunge gonski from the records as it it never happened.

      Interesting times in the flat brown sunburned land.

      • Ake ake ake 4.2.1

        You’re on to it. I’m on this side of the ditch and thinking how to better that summary.

        Not sure about the last reference though. This is a big place. Some parts are flat, some not, some brown, some not that brown. And it has been a mix of wet, cloudy, hot, humid and dry weather so far.

        One thing for sure, over here, we are more likely to be able to rely on the government to put ahead and protect the national interest.

        • Colonial Viper 4.2.1.1

          Indonesia being the positive aspect of Abbott’s performance in govt, so far 😈

  5. tricledrown 5

    Confused your home still uses copper doh.
    Your broadband is capped and you are paying some of the highest prices for that slow capped data.
    You will be subsidizing the monopoly chorus corporate welfare not surprising as you support a govt that has handed several billion of tax payers money to corporates!

  6. tricledrown 6

    Confused tell me how your voip works .
    Does it just get on the internet by majic.
    Or does it Go from your computet down the copper loop to the nearest exchange with fibre optic .
    Jeez no wonder you support a bunch of incompetent idiots called nactional.
    Another public private partnership monopoly fuckup.

  7. ghostwhowalksnz 7

    Everybodys broadband is capped.
    Even the so called uncapped plans available overseas have a fair use policy, which in reality means capped.

    • miravox 7.1

      Even the so called uncapped plans available overseas have a fair use policy

      I dunno – it feels quite ‘uncapped’ where I am, in the EU. I guess fair use depends on the expectations where you are. Even when I had visitors downloading every tv series and movie they could didn’t seem to knock on the door of any ‘fair use’ policy. I expect with internet-streamed tv in a domestic situation that sort of downloading would be expected.

      The visitors were swearing really, really badly about the hype around NZ broadband promises and what they they thought was a world-class service there.

      An American pov from a couple of years ago – but probably still stands for NZ

      • ghostwhowalksnz 7.1.1

        Try running a network across a country that is the size of Germany but instead of 70 million has only 4.25 million.
        Plus only has effectively two international fibre optic undersea connections, one to Australia and the other to Hawaii.

        I remember too some opera buff wondered why Auckland couldnt support a full time professional opera company. After all Stuttgart could with 600,000 people.

        What they didnt mention was that Stuttgart may have a municipal council population of 600,000 but the contiguous urban area was around 2.5 million. And the regional population was around 4 million. Plus it was the state capital of Baden Wurttemburg, around 10 million in an area roughly the size of Canterbury.

        So please , going to a small country 3 hours by air from its nearest neighbour in the pacific ocean, aint going to have ALL the same services as England or the Netherlands or even Stuttgart

        • Draco T Bastard 7.1.1.1

          Try running a network across a country that is the size of Germany but instead of 70 million has only 4.25 million.

          We’ve done it before and we had less than 4 million then.

        • miravox 7.1.1.2

          The comment wasn’t about how difficult it is to roll out broadband in NZ. More about the hype that what is there is a decent service, when it’s not.

  8. Ad 8

    Chorus, Mighty River Power, Genesis and Contact are pulling the NZX down hard.

    National Government promised to bring new life to NZX and is in fact a dead hand on an otherwise flourishing capital market.

    Shows how deeply under regulated NZ utilities are when the mere promise of fresh regulatory or political intervention sends their prices into a spiral.

    Key is the NZX’s shit fairy. And with it goes the retirement futures of those much vaunted “mums and dads”.

    • Ake ake ake 8.1

      There is a difference between currency speculating and stock market trading!
      They chose the wrong idiot to run the circus!!

  9. Philj 9

    Xox
    I think it was the corporate sector, Vodafone, and other business interests which had conflicting commercial interest to those of Chorus. The Government was in a cleft stick, two competing giant corporate Interests and the consumer being rorted, again. Amazing that it was this issue that united the opposition against the Government. We shall see more pressure leading up to the General election. Let the fun and games commence!

    • Rich 9.1

      That’s pretty much the case – you’ve got the telecoms resellers who want a low price so they can sell more and make a margin versus Chorus who have the opposite view.

      They’ve lined up behind different National party factions, no doubt handing over the usual bags-o-money along the way. If I have it right, Chorus are working with the Collins faction (who use Slater as a mouthpiece) and the resellers are with Adams and Farrar. Key has been sitting on the fence but seems to have little option but to cut Chorus loose, given the lack of votes for bailout price hikes.

      • idlegus 9.1.1

        there was some discussion somewhere that key was on the phone to the ceo of chorus daily.

      • Draco T Bastard 9.1.2

        That’s pretty much the case – you’ve got the telecoms resellers who want a low price so they can sell more and make a margin versus Chorus who have the opposite view.

        It wasn’t that long ago that the competitors were pretty much calling for re-nationalisation of the entire telecommunications network. They’d come to the conclusion that our present system of competition in networks was inefficient. They settled for ULL.

  10. Matthew Hooton 10

    A very good post. Very right wing! Sign a contract, take the risk, do the job, don’t bleat for corporate welfare.

    • Flip 10.1

      Normally I’m left of centre but primarily interested in what is best for NZ. Currently business has way too much influence on government.

      Established business has a problem innovating. It is set up to maximise profit from a particular source which in Choruses case is the Copper business. It is a hard ask for it to change to a new business (Fibre) and mostly that is a difficult and costly move. It is a well known problem.

      Normally a large established business will try and stop innovative companies coming into a market with new products unless prevented from doing so as they will take market share away from them. I’ve never understood why businesses say they welcome competition. I think it is disingenuous and look quite skeptically at those making the comment.

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