Chorus could lift its dividend post-UFB rollout but risks remain
By Jenny Ruth
Dec. 19 (BusinessDesk) - Chorus could step up its annual per-share dividend to about 40 cents, once it has finished
rolling out its share of the ultra-fast fibre network, says First NZ Capital analyst Arie Dekker.
Investors are starting to focus on the telecommunications lines company’s material free cash flow from the year ending
June 2021 and “the scene is set for Chorus to reset the dividend, rewarding patient investors,” Dekker says.
Chorus paid a total of 22 cents per share in the year ended June and is forecasting that will lift to 23 cents this
year.
“Our analysis highlights a step up to about 40 cents per share is possible but we can similarly demonstrate factors that
might negatively influence confidence in (dividend) sustainability,” Dekker says in a note.
“The prospect of network competition from wireless has the potential to undermine (the) post-2020 dividend reset,” he
says.
“If competition is real, then Chorus faces the prospect of having to use price to protect against penetration loss.
Fibre has advantages but fixed wireless will look to compete on convenience and Spark will target customers at the lower
end of the usage curve.”
Spark has clawed back more than $60 million a year in revenue over the last couple of years from Chorus through selling
wireless broadband but the limitations of the 4G technology mean it probably won’t gain too many new customers for this
offering.
However, Spark is champing at the bit to get 5G technology with its greater bandwith up and running and that should
increase its addressable market for wireless broadband.
Dekker says the 5G technology does provide Spark with an opportunity.
“5G will unleash further potential in wireless networks and it is worth bearing in mind the incentives on mobile network
operators without fixed network assets to look to compete in broadband,” he says.
“To date, only Spark has used fixed wireless in a meaningful way to bypass copper inputs. In time, we expect lower usage
fibre users to be targeted and the switch-off of the copper network will also provide Spark and other mobile network
operators with an opportunity to target fixed wireless as a broadband alternative.”
Chorus was spun out of Telecom in 2011 by government fiat ahead of the UFB rollout and Telecom changed its name to Spark
in 2014.
No date for turning off Chorus’ legacy copper network has been set and it will need parliament to pass enabling
legislation but it is expected to be turned off in stages.
The competition regulator, the Commerce Commission, has already started a three-year process to implement the new
regulatory framework for fibre pricing to take effect from the start of 2022.
Dekker says the new regulatory regime will be similar to the regime used for power companies and airports, one that
investors are used to “and have some confidence in.”
Nevertheless, investors need to keep in mind that the telco regime will have some differences.
(BusinessDesk)
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