Hon Amy Adams Minister for Communications and Information Technology. 15 November 2013
Communications and Information Technology Minister Amy Adams has today announced the firm that will undertake an independent assessment of Chorus’ financial position, and released the terms of reference (see below).
Ernst & Young Australia will investigate Chorus’ capability to deliver on its contractual commitments with the Government, in light of the Commerce Commission’s decisions on final wholesale prices for copper-based broadband services.
“A wide range of consultants both in New Zealand and overseas were considered before making the decision,” Ms Adams says.
“The key criteria for selecting a firm were the absence of conflicts of interest, the availability of appropriate forensic accounting and corporate finance skills, and the availability of specialist skills in telecommunications.”
The independent assessment has been commissioned to provide the Government with a detailed analysis of the impact on Chorus of the recently announced determinations of the Commerce Commission and its ability to meet its Ultra-Fast Broadband (UFB) and Rural Broadband Initiative (RBI) contractual obligations through internal adjustments.
It will also distinguish between the impact of the Commerce Commission’s pricing decisions and any strategic choices that Chorus may have made which may contribute to any financial stress it could face.
The review is expected to be completed before the end of the year. A copy of the report will be made available to the public, with any commercially-sensitive material redacted.
“The immediate concern to the Government is if its UFB and RBI contracts are at risk.
“The findings of the independent assessment will help to inform any decisions the Government needs to make to ensure the successful delivery of the UFB and RBI projects.”
How independent will Amy Adam’s Chorus probe be? Labour Communications and IT Spokesperson.
Terms of Reference
The Government has committed to an investment of $929 million in Chorus as an Ultra-Fast Broadband (UFB) partner, and is committed to rolling out the UFB programme given the significant benefits it offers to New Zealanders.
The Commerce Commission has recently made final decisions on prices for the Unbundled Copper Local Loop Service and the Unbundled Bitstream Access Service. Chorus has advised the market that the decisions will have a significant negative impact on its business and signalled that it wishes to engage with government about its capability to participate in the UFB programme.
The Government is seeking to appoint a reviewer to provide independent analysis and advice on Chorus’ current and forecast financial position and its capability to deliver on its contractual obligations in light of the Commerce Commission’s decisions.
The priority for the review is to:
1. Assess the impact of the final Commerce Commission decisions on prices for the Unbundled Copper Local Loop Service and the Unbundled Bitstream Access Service on key Chorus financial indicators, including EBITDA, net operating cash flow, debt ratios, borrowing limits and borrowing costs now and over the build period for the UFB and Rural Broadband Initiative (RBI) networks and to the end of the term of the Crown Fibre Holdings Securities. The impact of the Commission’s decisions should be distinguished from the impact of Chorus’ own strategic choices where, for example, such choices may have led to higher capital expenditure than initially forecast.
2. Then identify the financial capability of Chorus against its Telecommunications Service Obligations, Standard Terms Determinations, RBI and UFB contractual obligations, taking into account any actions that Chorus could take to increase financial flexibility including adjustments to:
a. operational costs
b. capital cost structures
c. debt facilities, and
d. the contribution that a change in dividend policy could make
This review will include direct engagement with Chorus and Crown Fibre Holdings. It is expected to involve assessing financial information and forecasts provided by them. The reviewer will provide a view on the robustness of the information and forecasts provided by Chorus.
We may also commission an additional piece of work from an investment bank on the likelihood of a successful capital raise by Chorus to meet its contractual obligations. This work will be informed by the financial analysis of Chorus set out above.
A draft report is to be delivered by 5pm Friday, 6 December 2013 to the Minister for Communications and Information Technology and a final report is to be delivered to the Minister for Communications and Information Technology by 5pm, 12 December 2013.
A copy of the final report will be made available to the public once the Minister has had the opportunity to consider it (with any commercially sensitive material redacted).