The Terms of Reference (ToR) for the review of Chorus’s financial situation are out and Ernst & Young has been appointed to undertake the review.
The ToR are brief and to the point. The review will focus on the impact of the Commerce Commission’s UBA price determination on Chorus and its ability to take part in the UFB and RBI projects.
The review will also look at Chorus’s financial capability to deliver the TSO and abide by any standard Terms Determination (STD) that has been decided by the Commission.
Then the review will look at what Chorus could do to increase its “financial flexibility” including making changes to its costs, its debt facilities and any change to its dividend policy that may or may not take place.
The second half of this review is the key to this whole issue and to my mind it needs beefing up somewhat.
I don’t for a second believe that reducing the earnings from one part of the wholesale regime will cause the company the kind of trouble it claims. The numbers just don’t stack up and Chorus simply should have known this was coming. If it’s claiming that it didn’t expect the drop, questions must be asked about management’s ability to run the company. We all saw this coming, and by all I do mean all – even the Minister of Communications who introduced the bill knew the impact would be severe, and so built the three-year delay into the Act.
It’s not revenue coming in that’s the problem. If there is a problem, it’s the costs going out at the other end of the business that is driving Chorus’s actions.
Currently, Chorus is paying more than double the amount it expected to connect each property and that’s after a project to reduce its spend.
Each property costs around $3000 to connect. By contrast, the OECD tells me that in Europe, fibre to the home costs tend to run at around EU1200 each, while B4RN in the north of England (a community-led project running fibre to rural and remote communities) spends around GBP1000 per premise connected.
We’ve all heard the horror stories of UFB connections that take days if not weeks, that involve teams of contractors standing around wondering what to do next. I’ve seen pictures of holes drilled in walls, of drive ways dug up and then re-dug. I’ve heard failure rate figures of up to 80% even after the connection is made, and that all adds up to two things: unhappy customers and huge cost overruns.
This is the problem that needs resolving. Forget about the Commerce Commission’s look at copper pricing, Chorus’s spend on fibre is the problem.
I’ve seen Chorus installations, and I’ve seen Enable and Northpower installations and there’s not a lot of difference on the surface.
Enable was drilling in a line down a drive way when I visited and the team of three were working efficiently and well.
Northpower was connecting via overhead lines and each two-man team can do three properties a day without too much hassle.
So where does the cost difference come from? Why is it that smaller LFCs can complete their builds ahead of schedule and at a reduced cost while Chorus can’t? That’s a question I’d like to see the E&Y review address – perhaps we can compare and contrast Chorus’s build with another company doing the same work here in New Zealand.
One thing all the UFB and RBI contractors would benefit from is a review of the laws regarding access to buildings.
This is a replacement network – it’s a once in a generation upgrade that will result in a new infrastructure for the country. It’s high time we treated it as such and stopped getting in the way of the fibre deployment.
I’d like to see the Telco Act reviewed to make it easier for companies to deploy fibre. Currently roughly half of the costs go towards getting the right stamp on the right piece of paper and that’s just unacceptable. We’re replacing like for like (well, fibre in place of copper) so let’s just treat it as such and stop all this nonsense.
On top of that, I’d like to see some real stats from Crown Fibre on the deployment itself. We get a national average of uptake and how many properties are now able to be connected, but how are the LFCs and Chorus tracking against service level agreements?
I’ve been hearing some shocking stories of delays in getting orders through to the start line (the clock doesn’t start ticking until orders pass through the design phase, apparently, and many of them are delayed at that point for months in some cases) and missed installation dates that are driving ISPs crazy. Remember, the ISPs are the customers here – Chorus and the LFCs don’t work for us, they work for them.
CFH has a major role to play in sorting out the mess at that end of the process and that’s something TUANZ would wholeheartedly support.
Radically changing the regulatory environment to overrule the Commerce Commission to change one price input at the other end of the process is a mistake on many levels, but perhaps most significantly, I don’t think it will get Chorus out of this hole.