Commerce Commission releases Price Quality draft decision

The Commerce Commission has released its draft decision on Chorus' price-quality determination for the first regulatory period for fibre (RP1, 2022-2024). The draft decision references an annual revenue range of $689 million to $786 million, including pass-through costs, during RP1 and remains broadly consistent with Chorus' forecast fibre revenues for the period. However, today's draft decision is based on Chorus' recently submitted conservative RAB estimate of $5.5 billion and doesn't reflect critical decisions yet to be made by the Commission on the initial value of the fibre network. Risk-free rate and inflation assumptions will also need to be updated when the Commission makes its final decision. Key elements of today's decision include: o a diminishing value depreciation method for the financial loss asset, using a depreciation rate of 14.3% o smoothing of the revenue profile in the period o post-tax WACC of 4.46%, including risk-free rate of 0.43% for three-months ending 31 March o reductions to capital expenditure, largely reflecting differing demand and inflation assumptions and proposals to require additional evaluation for incentive and innovation spend o a proposed 10.6% or $52m reduction to Chorus' operating expenditure in the period A table from the Commission's draft decision summarising these key elements is attached. The Commission's decision is available here. Chorus submitted a proposed MAR of $720 million to $820 million to the Commission on 17 May. Chorus CEO JB Rousselot said Chorus will review the Commission's decision carefully and a key focus area for its submissions will be ensuring the expenditure allowed by the Commission can support the ongoing rollout and operation of our world class fibre network. Authorised by: David Collins Chief Financial Officer ENDS For further information: Brett Jackson Investor Relations Manager Phone: +64 4 896 4039 Mobile: +64 (27) 488 7808 Email: Brett.Jackson@chorus.co.nz Steve Pettigrew Head of External Communications Mobile: +64 27 258 6257 Email: steve.pettigrew@chorus.co.nz End CA:00372922 For:CNU Type:MKTUPDTE Time:2021-05-27 09:11:31