HALF YEAR RESULT - Chorus NZ
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HALF YEAR RESULT H1 FY20 RESULT PRESENTATION 24 February 2020
Disclaimer This presentation: • Is provided for general information purposes and does not constitute investment advice or an offer of or invitation to purchase Chorus securities. • Includes forward-looking statements. These statements are not guarantees or predictions of future performance. They involve known and unknown risks, uncertainties and other factors, many of which are beyond Chorus’ control, and which may cause actual results to differ materially from those contained in this presentation. • Includes statements relating to past performance which should not be regarded as reliable indicators of future performance. • Is current at the date of this presentation, unless otherwise stated. Except as required by law or the NZX and ASX listing rules, Chorus is not under any obligation to update this presentation, whether as a result of new information, future events or otherwise. • Should be read in conjunction with Chorus’ audited consolidated financial statements for the year to 30 June 2019 and NZX and ASX market releases. • Includes non-GAAP financial measures such as "EBITDA”. These measures do not have a standardised meaning prescribed by GAAP and therefore may not be comparable to similar financial information presented by other entities. They should not be used in substitution for, or isolation of, Chorus' audited consolidated financial statements. We monitor EBITDA as a key performance indicator and we believe it assists investors in assessing the performance of the core operations of our business. • Has been prepared with due care and attention. However, Chorus and its directors and employees accept no liability for any errors or omissions. • Contains information from third parties Chorus believes reliable. However, no representations or warranties (express or implied) are made as to the accuracy or completeness of such information. 2 24 February 2020 H1 FY20 RESULT PRESENTATION
Agenda
JB Rousselot, CEO > HY20 overview 4
> Connections performance 5-7
> UFB rollout and uptake 8-10
> Subcontractor initiatives 11
David Collins, CFO > Financial results 12-16
> Capex 17-19
> FY20 guidance update and UFB recap 20-21
> Dividend policy and capital management 22-27
> Regulation: asset beta and WACC 28-30
JB Rousselot, CEO > Winning with fibre: data usage and performance 31-33
> Strategic priorities 34-42
Appendix A: Connection and market trends 43-45
3 24 February 2020 H1 FY20 RESULT PRESENTATION
A hyper active six months
▪ CEO transition
▪ UFB1 rollout completed (2011-2019)
▪ launch of Hyperfibre (2 and 4Gbps)
▪ contract for rural mobile backhaul
▪ S&P threshold increased to 4.25x
▪ draft Fibre Input Methodologies decision
▪ 7-year EUR300 million bond issued
▪ merger of Customer Care and Network Field
Management teams
1. Earnings before interest, income tax, depreciation and amortisation (EBITDA) is a
non-GAAP profit measure.
4 24 February 2020 H1 FY20 RESULT PRESENTATION
Strong broadband growth
Chorus UFB zone broadband mix
> Total broadband connections increased by 1,000,000
10k to 1,206,000 (HY19:-1k) 900,000
▪ fibre now 68% of broadband connections in 800,000
Chorus UFB zone 700,000
600,000
500,000
> Total fixed line connections declined by 18k 400,000
to 1,432,000 (HY19:-40k) 300,000
200,000
100,000
No. of -
connections
Note: Q2 typically sees seasonal effect of holidays and
student disconnections on total connections volumes Fibre Copper broadband
5 24 February 2020 H1 FY20 RESULT PRESENTATION
Gigabit is becoming the new norm
Total mass market fibre uptake by plan type
100 Business/Education plans
> 82,000 mass market fibre connections added
1Gbps $60 p.m.
90
200Mbps
> 1Gbps connections grew by 29,000 (50%)
$55 p.m.
▪ attractive second tier RSP promotions
80
▪ RSP migration of 200Mbps customers
70 ▪ now 13% of connections and growing
100Mbps $46 p.m.
60
Fibre plan movement by quarter
% of
plans 50 30
Q1 Q2
40 20
Change in
30
connections 10
(‘000s)
20
0
10
50Mbps $42.50 p.m. -10
50Mbps 100Mbps 200Mbps 1Gbps
0
Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
6 24 February 2020 H1 FY20 RESULT PRESENTATION
Connection changes by Zone (indicative)
Chorus UFB Rural (non- Local Fibre
Q2 -7k -2k zone* UFB) zone Company
UFB zone
LFC
Total connections at 1,096,000 196,000 124,000
Q1 -7k -3k
Zone Broadband connections 31 Dec**
Copper (no broadband) connections Broadband connections 969,000 154,000 83,000
Q2 N/C -2k
Copper (no broadband) 127,000 42,000 41,000
Rural connections
Zone * Includes planned UFB1, 2 and 2+ coverage
Q1 +1k -2k **Excludes 16k fibre premium and data services (copper) connections
Q2 +7k -8k
Chorus
UFB Zone
Q1 +16k -11k
- 200,000 400,000 600,000 800,000 1,000,000
No. of connections
7 24 February 2020 H1 FY20 RESULT PRESENTATION
Completion of UFB1 rollout a major milestone
28,000kms of fibre and growing
100,000
90,000
> UFB1 rollout completed 1 month ahead of 80,000
schedule and within $1.8 billion guidance 70,000
60,000
50,000
> UFB2* rollout already 37% complete 40,000
30,000
> 909,000 premises passed (FY19: 842,000) 20,000
out of 1,054,000 target by December 2022 10,000
0
FY20 FY21 FY22 FY23
Premises passed* Premises to pass
*includes UFB2+ extension *excludes UFB1 greenfields
8 24 February 2020 H1 FY20 RESULT PRESENTATION
UFB uptake: 56% within completed footprint
1,185,000 customers able to connect (FY19: 1,108,000)
> 664,000 connections (FY19: 584,000) within completed UFB footprint (includes business premium fibre)
▪ Auckland: 63% fibre uptake by address; 76% of our broadband connections are on fibre
Auckland: Chorus
UFB2: 34% uptake in
UFB1: 58% uptake broadband connections
completed footprint
by type (%)
32,000
11
13
166,000 459,000
62,000
632,000
76
Fibre VDSL (copper) ADSL (copper)
Connections Fibre available To pass
9 24 February 2020 H1 FY20 RESULT PRESENTATION
Fibre installations consistent with FY19 trend
Uptake
Fibre installations (NZ wide)
> 99,000 fibre installations completed in HY20 20,000
(HY19: 95k) FY18 FY19 FY20
▪ customer satisfaction up from 7.7 (June) to 7.8 18,000
(December)
▪ weighted average lead times down from 8 days 16,000
(June) to 7 days (December)
▪ work in progress reduced from 23k (June) to 20k 14,000
(December)
▪ field crew levels stable at ~670 12,000
10,000
8,000
July Aug Sept Oct Nov Dec Jan Feb Mar April May June
10 24 February 2020 H1 FY20 RESULT PRESENTATIONSubcontractor initiatives
▪ supplier code of practice incorporated into key supply contracts
▪ established worker welfare portal and independent whistle-blower process
▪ implemented some changes to payment codes and processes to improve fairness and transparency
▪ subcontractor companies required to complete training to ensure awareness of minimum employment
standards, along with mandatory statutory declarations of compliance
▪ trust fund established to support workers affected by discontinued contractors
▪ ongoing audit programme with regular updates to the Board
▪ Visionstream and UCG completed strategic workforce plans for expected decline in workforce numbers
Contract scope Connecting premises UFB2 network build Maintenance of copper
to fibre and fibre; fibre build
outside UFB areas
Contractor Electronet Broadspectrum Downer
UCG Electronet Visionstream
Visionstream Visionstream
Contract period Until September 2020 Until December 2022 Until March 2022
11 24 February 2020 H1 FY20 RESULT PRESENTATIONFinancial performance
David Collins, Chief Financial Officer
24 February 2020 H1 FY20 RESULT PRESENTATIONIncome statement
H1 H2 H1
FY20 FY19 FY19
$m $m $m
Operating revenue 483 481 489 > Broadband revenue grew; copper connections
and demand for field service activity reduced
Operating expenses (151) (163) (171) > Positive trends across most cost lines
Earnings before interest, tax, 332 318 318
depreciation and amortisation
(EBITDA)
Depreciation and amortisation (198) (197) (196) > Growing fibre asset depreciation partially offset by
increasing amortisation of Crown financing
Earnings before interest and income tax 134 121 122
Net interest expense (88) (86) (79) > Increase due to growing bond debt and Crown
financing interest
Net earnings before income tax 46 35 43
Income tax expense (15) (12) (13)
Net earnings for the year 31 23 30
13 24 February 2020 H1 FY20 RESULT PRESENTATIONRevenue
H1 H2 H1
FY20 FY19 FY19
$m $m $m
Fibre broadband 187 158 136 > Growth in fibre connections and uptake of higher ARPU plans
(GPON)
Fibre premium (P2P) 36 37 37
Copper based 144 163 181
broadband
Copper revenues reducing as customers migrate to Chorus fibre
Copper based voice 42 50 56 or competing fibre/wireless networks
Data services copper 8 8 10
Field services 33 35 39 > Reduction in third party requests for network relocation
Value added network 16 14 16
services
Infrastructure 12 12 12
Other 5 4 2 > One-off legal settlement
Total 483 481 489
14 24 February 2020 H1 FY20 RESULT PRESENTATIONExpenses
H1 H2 H1
FY20 FY19 FY19
$m $m $m
> Staff numbers now 862 vs 914 (HY19) One-off restructuring
Labour 39 37 37 costs of $1.5m
Network maintenance 34 37 38 > Growing proportion of connections on fibre and fewer
weather events affecting service
Other network costs 12 15 18 > Fewer 3rd party requests for network relocation
IT 23 24 26 > New platforms reducing IT maintenance and support costs
Rent, rates and property 11 17 13
maintenance
Electricity 8 8 9 > Lower electricity prices and reduced power consumption
Provisioning 2 3 3
Insurance 2 1 2
Consultants 5 3 4 > Increase in external advice for new regulatory framework
Regulatory levies 4 8 8 > Reduction in required contribution to Telco Development Levy
Other 11 10 13
Total 151 163 171
15 24 February 2020 H1 FY20 RESULT PRESENTATIONReactive maintenance: Chorus network
Key drivers for $31m spend Reactive spend by type
20
▪ copper (fixed and variable) fault volumes reduced due to 15
favourable weather, particularly in Auckland region, and
reduction in total copper connections. $m 10
5
▪ fibre maintenance increasing as share of connections grows,
but fault rate is lower on fibre (although costlier to fix). 0
Fibre Copper - fixed Copper -
variable
▪ long run annual saving from full copper to fibre migration in H1 FY19 H2 FY19 H1 FY20
Chorus UFB areas estimated at ~$10m p.a.
Copper - reactive spend by area
15
Note: $m 10
▪ reactive maintenance excludes spend on proactive maintenance and
customer networks (i.e. premises wiring, no fault found, cancellations)
5
▪ ‘fixed’ faults: occur in parts of the network that affect multiple customers
(e.g. cable between exchange and cabinet)
▪ ‘variable’ faults: only affect one customer (e.g. cable on customer property) 0
Chorus UFB Rural (Non UFB) LFC UFB
16 24 February 2020 H1 FY20 RESULT PRESENTATIONCapex: Fibre
45,000 brownfields premises passed
▪ Cost per UFB1 premises passed (CPPP): ~$1,558 vs $1,500 - $1,600 guidance
Fibre capex H1 FY20 H2 FY19 H1 FY19
$m $m $m
UFB communal 100 126 119 > comprising $26m for UFB1; $74m for UFB2
Fibre connections & layer 2 155 147 161 > 99,000 installations, including 14,000 UFB2
Fibre products & systems 7 10 7
Other fibre connections & growth 28 29 36 > includes greenfields spend of $20m (FY19: $34m)
Customer retention costs 10 21 8 > incentive offers linked to fibre connection volumes
Subtotal 300 333 331
17 24 February 2020 H1 FY20 RESULT PRESENTATIONCapex: Fibre connections & layer 2
Connections capex of $155m
▪ Cost per premises connected (CPPC):
▪ UFB1: $995* vs $1,000 - $1,150 guidance
▪ UFB2: $1,179* - in line with the lower end of UFB2 programme guidance of $1,650 - $1,850 in 2017 dollars
* excludes layer 2 and includes standard installations, some non-standard single dwellings and service desk costs
Note: UFB2 programme guidance includes layer 2, backbone costs for multi-dwelling units and rights of way with 10 or fewer premises,
and service desk costs
Fibre connections & layer 2 capex H1 FY20 H2 FY19 H1 FY19
Layer 2 $12m $16m $9m
Premium business fibre connections $6m $4m $4m
800 connections 600 connections 600 connections
Single dwelling units and apartments $98m $98m $100m
99k connections 91k connections 95k connections
Backbone build: multi-dwelling units and rights of way $39m $29m $48m
6.5k completed 6.5k completed 9.5k completed
TOTAL SPEND $155m $147m $161m
18 24 February 2020 H1 FY20 RESULT PRESENTATIONCapex: Copper and Common
Copper capex H1 FY20 H2 FY19 H1 FY19
$m $m $m
Network sustain 15 25 19 > reducing as copper connections decline and pole
replacement programme slows
Copper connections 1 1 1
Copper layer 2 3 6 6
Product 0 0 1
Customer retention costs 10 10 12
Subtotal 29 42 39
Common capex H1 FY20 H2 FY19 H1 FY19
$m $m $m
Information technology 20 17 17 > New IT systems to support customer delivery
Building & engineering services 8 15 7
Other 0 2 1
Subtotal 28 34 25
19 24 February 2020 H1 FY20 RESULT PRESENTATIONGuidance update
> EBITDA: new range of $640m to $655m
▪ The revision to our prior range of $625m to $645m reflects:
• positive broadband connections performance and ARPU in H1
• the benefit of cost savings achieved in H1 and expectations for H2
• confirmation of a reduction in the Telecommunications Development Levy
• greater fibre uptake spend in H2
> Gross capex: no change to $660m - $700m range
▪ Currently tracking towards the top half of gross capex guidance
• Fibre connections & layer 2 capex increased from original range of $260m to $280m to a new
range of $295m to $315m, reflecting new forecast of 180k to 200k fibre connections vs 160k
to 180k previously
20 24 February 2020 H1 FY20 RESULT PRESENTATIONUFB programme recap
UFB1 UFB2
> rollout completed at top of $1.75 to $1.8 billion communal
Communal Combined guidance range for UFB2
capex guidance range
rollout: $505 - and 2+
> Crown financing will be claimed for ~827,000 premises $565 million
passed =$924m
▪ includes ~39k greenfields premises
Cost to In 2017 dollars and including layer
connect: 2, backbone costs for MDUs and
> initial programme guidance for UFB1 cost to connect a $1,650 - rights of way with 10 or fewer
standard residential connection is no longer relevant given $1,850 premises and service desk costs
end of rollout, non-standard connections and linkage to
2011 dollars
▪ we’ll continue to provide an annual view on cost to
connect. FY20 guidance remains $1,000 - $1,150
(excluding layer 2 and including standard installations
and some non-standard single dwellings and service
desk costs)
21 24 February 2020 H1 FY20 RESULT PRESENTATIONInterim dividend of 10cps, fully imputed
▪ supplementary dividend of 1.76 cps payable to non-resident shareholders
▪ record date: 17 March 2020
▪ payment date: 14 April 2020
▪ Dividend Reinvestment Plan available to New Zealand and Australian resident
shareholders with no discount to be applied
▪ No change to FY20 dividend guidance of 24cps, subject to no material adverse changes
in circumstances or outlook
22 24 February 2020 H1 FY20 RESULT PRESENTATIONCurrent dividend policy until June 2021
> In August 2019, the Board noted it expects to continue to be able to provide shareholders with
modest dividend growth through to June 2021, subject to no material adverse changes in
circumstance or outlook
> This timeframe reflects:
• the scheduled release of the Commerce Commission’s final determination of our regulated
asset base and maximum allowable revenue for fibre
• following this determination, an expected update from Moody’s on their intention to place
Chorus’ credit metric threshold more in line with other regulated utilities
• Chorus’ expected substantial growth in positive free cash flow as the UFB rollout nears
completion, after 10 years of substantial investment, and connection spend gradually reduces
23 24 February 2020 H1 FY20 RESULT PRESENTATIONSubstantial free cash flow as UFB rollout ends
> UFB communal capex will begin decreasing UFB capex demands will reduce
following the end of UFB1 and as the UFB2 rollout significantly from FY21
(premises passed) steps down through to December 350
Communal spend Connection spend
2022
300
250
> UFB connections capex is expected to gradually
taper off, subject to ongoing demand and timing of 200
future copper migration in selected areas
150 Illustrative only
100
> Copper capex will continue to trend down as copper
connection numbers reduce across our UFB/LFC zones 50
0 UFB2 rollout ends Dec 2022
> Other ongoing discretionary capex (e.g. footprint $m FY17 FY18 FY19 FY20* FY21 FY22 FY23
expansion) subject to market drivers and regulatory *based on midpoint of FY20 guidance
investment incentives
24 24 February 2020 H1 FY20 RESULT PRESENTATIONTransitioning to a cash flow based dividend policy
Free cash flow preferred future dividend metric Net cash flows from
> The Board recognises that investors have had constrained operating activities
returns through the decade long UFB investment cycle and
our focus is on returning surplus cash flows to shareholders Sustaining capital
> Our expectation is from FY22 we will transition to a dividend expenditure
policy based on a pay-out range of free cash flow that All fibre, copper and common capex,
reflects: excluding:
▪ UFB communal and future footprint
• comparable Australasian infrastructure and utility-like expansion
businesses that pay out the majority of FCF ▪ fibre connections/greenfields
▪ customer retention spend
• a focus on providing shareholders with dividend
predictability, stability and sustainable growth
• robust management of capital expenditure
• maintenance of leverage at levels consistent with a Free cash flow*
Baa2/BBB credit rating
> In the event of future credit rating threshold uplift, Chorus *Note: Chorus will continue to have
would also consider appropriate capital management activity, elevated UFB related capex through
noting the current ascribed capital balance of ~$225m the transition period
25 24 February 2020 H1 FY20 RESULT PRESENTATIONNet debt/EBITDA
Ratings agencies are revising threshold views as fibre rollout risk reduces
As at > S&P increased their ND/EBITDA threshold from 4x to
31 December 4.25x on a sustained basis
2019
$m
> Moody’s have stated their intention to review their
Borrowings 2,876 current 4.2x threshold in mid 2021
+ PV of CFH debt 174
securities (senior) > Financial covenants require senior debt ratio to be
+ Net leases payable 255 no greater than 4.75 times
Sub total 3,305
> The Board considers that a ‘BBB’ credit rating or
- Cash (678) equivalent credit rating is appropriate for a company
Total net debt 2,627 such as Chorus.
Net debt/EBITDA* 4.06 times
*Based on S&P and bank covenant methodologies
26 24 February 2020 H1 FY20 RESULT PRESENTATIONCrown financing and debt profile
> At 31 December, debt of $2,876m comprised:
> up to $1.33 billion CIP financing ▪ Long term bank facilities of $550m undrawn;
available by 2023 (57:43 equity/debt) ▪ NZ bond: $400m and $500m
> $1,007m drawn at 31 December 2019 ▪ Euro Medium Term Notes $1,976m (NZ$ equivalent at hedged rates)
CIP debt securities available
drawn undrawn
Face value of CIP debt securities issued
800
8 8 EUR EMTN
700
NZ Bond
600
GBP EMTN
500
NZ
NZ 400 785
$M
$M 677
454 454 300
203 514 500 58
200 400 41
2 21
100 161
84 84 126
99 105 0
UFB1 UFB1 DEBT UFB2/2+ UFB2/2+
EQUITY EQUITY DEBT
27 24 February 2020 H1 FY20 RESULT PRESENTATIONRegulation: a recap
Parameters Summary of key parameters from the Commission’s draft decision
Crown financing Accepted that Crown financing is debt-like in nature. Calculation inputs to be clarified.
Taxation Accepted that tax losses in pre-implementation period can be carried forward.
TAMRP Tax-Adjusted Market Risk Premium updated from 7% to 7.5%.
Credit rating Inconsistent use of Chorus’ actual BBB rating for Crown financing vs BBB+ for WACC.
WACC: 2011-2022 Suggest WACC for the unrecovered loss asset will be adjusted on an annual basis from 2011
to 2022, using a diminishing period for calculating the risk free rate each year.
WACC: asset beta Proposed a revised asset beta of 0.49, up from 0.46, for both pre and post 2022 periods.
Commission says difficult to quantify the pre-2022 asset beta and unrecovered losses
compensate for higher systematic risk.
WACC: percentile Propose no uplift (above 50th percentile) is required to mitigate risk of under-investment. We
believe uplift to 75th percentile should apply for initial rollout, consistent with regulatory
practice at the time, and 67th percentile from implementation date.
Ex-ante allowance 10bps (of the average total RAB) ex-ante allowance proposed, from a range of 5 to 40bps, to
for asset stranding be included in the maximum allowable revenue. We believe an accurate allowance requires
confirmation of the total RAB and our experts showed it could be above 40bps.
Depreciation Act requires straight line depreciation for initial RAB valuation, but Commission accepts non-
standard depreciation (i.e. tilted) could be considered post-implementation.
28 24 February 2020 H1 FY20 RESULT PRESENTATIONDraft asset beta does 0.7
Reasonableness checks
not reflect a fibre access
network business 0.65 CNU estimate:
during rollout
● The Commission’s 0.49 asset beta estimate is
below multiple benchmarks and based on CNU estimate:
averaging a narrow telco comparator group. 0.6
post 2022
● Using a broader Damodaran telco group removes
potential selection bias and indicates a range of
0.54 to 0.65. 0.55
● We estimate an asset beta of 0.65 during UFB
rollout, and 0.60 for the first regulatory period.
● In January Ofcom (UK) released detailed fibre
0.5 Commission
investment proposals including asset beta: 0.65
draft 0.49
for FTTP to reflect higher risks vs 0.57 for
Openreach’s established copper and dark fibre
network (like Chorus’ legacy business) 0.45
● The financial loss asset does not compensate for Ofcom (UK): Ofcom: fibre to
Openreach
Damodaran
premises (2020) (Telco: wireless
Crown Fibre
Holdings
NBN estimate
systematic or asset stranding risk. The loss asset copper (2020) and services) estimate (2011)
simply adjusts the initial RAB to better reflect costs
that weren’t recovered through historic UFB pricing
and demand. Recovery of these costs is not
guaranteed and occurs over a long time horizon.
29 24 February 2020 H1 FY20 RESULT PRESENTATIONA fair return?
> The Commission’s proposed annualised > Post January 2022: the WACC implied by
approach to calculating the 2011 to 2022 the draft decision does not reflect the
WACC does not reflect a fair return for the nature of a fibre access business
UFB investment programme
● Chorus committed to UFB1 investment in 2011 and ● A 4.88% fibre WACC is only slightly above the
financed our business accordingly. We could not WACC recently set for electricity distribution
revisit our UFB capex programme annually. businesses at 4.23% (noting a 7% TAMRP was
used)
● If the Commission chooses not to recognise this as
a single regulatory period, the annual WACC ● Ofcom’s recent fibre investment proposal suggests:
calculation should still use 10-year risk free rates, ▪ a 6.5% to 6.6% WACC (post-tax, nominal) for a
consistent with prior practice taken in unregulated business investing in FTTP
industries (e.g. fuel market study).
▪ a 5.9% WACC (post-tax, nominal) for Openreach
● Crown Fibre Holdings (CFH) detailed the WACC for as a predominantly legacy copper access
a fibre company to Parliament in 2011: business
▪ CFH estimated a WACC of 7.72% to 8.97%
(TCNZ co-operate scenario) and used a 9%
WACC to establish wholesale pricing
▪ The NZ 10-year Government bond rate was used
for the risk-free rate (5.25%)
30 24 February 2020 H1 FY20 RESULT PRESENTATIONWinning with fibre
JB Rousselot, Chief Executive Officer
H1 FY20 RESULT PRESENTATION
24 February 2020Monthly average data usage exceeds 300GB
Monthly average data usage > Monthly average data usage per connection on our network grew
per connection on our network to 302GB in January 2020
▪ 372GB on fibre; 205GB on copper
400
363
350 > Fixed line networks carry more than 90% of NZ internet traffic
293
300 Chorus total monthly (January)
400 network traffic
Data 250
usage 200 350
(GB) 200
300
150
250
100 GB 200
(millions)
50 150
Copper Fibre Average
100
0
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
50
0
2014 2015 2016 2017 2018 2019 2020
32 24 February 2020 H1 FY20 RESULT PRESENTATIONFibre delivers superior
broadband performance
Commerce Commission report shows:
> Fibre consistently enables multiple streams of
Ultra High Definition content while other
technologies have variable performance - see
Figure 11.
> Fibre ensures low latency performance. Latency
above 30ms can result in poor experience of
applications such as gaming or video calls - see
Figure 13.
Source: Measuring Broadband New Zealand, Spring Report,
December 2019, Commerce Commission
33 24 February 2020 H1 FY20 RESULT PRESENTATIONOur strategic priorities
Develop
Win in our Optimise long term
Grow new
core fibre non-fibre future of
revenues
business assets the
business
34 24 February 2020 H1 FY20 RESULT PRESENTATIONWin in
our core
fibre
business
Driving market penetration and share
Taking active wholesaling to another level
> Chorus managed migration programme
▪ 20,000 installations completed July to January
▪ 15% uplift in uptake levels in our campaign areas
▪ 35% of visited UFB2 homes agree to an installation, leading to
50% uptake within 6 months
> Current marketing incentives
▪ MDU installation campaigns
▪ retailer credits up to $170 for gigabit connections above mix
thresholds
▪ 15,000 prezzy card offers sent to offnet consumers
35 24 February 2020 H1 FY20 RESULT PRESENTATIONWin in
our core
fibre
business
Fibre continues to grow Wellington connections
Return to connection growth in recently completed UFB areas
No. of No. of
connections connections
Karori exchange 1700
Island Bay exchange
3200
3100
3000
2900
1600
2800
2700
2600
2500
UFB rollout 1500
UFB rollout
Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
36 24 February 2020 H1 FY20 RESULT PRESENTATIONWin in
our core
fibre
business
Enhancing customer experience
Fastest activation, best speed + experience
Net promoter score
> Chorus led installations: achieving 8.1 (NPS)
customer satisfaction vs 7.9 for regular ‘on-
demand’ ordering NPS by fibre speed
60
> Wi-Fi ONT: ~130,000+ Wi-Fi capable ONTs 50
50
installed to date; RSP trials underway 40
30
30
> Small business plans: ~1,500 connections 20
22
with enhanced restoration target 10
12
0
50 or less 100 200 1,000
Fibre plan speed (Mbps)
37 24 February 2020 H1 FY20 RESULT PRESENTATIONWin in
our core
fibre
business
Regulatory framework
2020 2021 2022-2024 2025-2030
1st regulatory period 2nd regulatory
period
• Mid-year: Final Input • June: Final Price Quality • Commission may choose to review
Methodologies decision decision revenue cap framework and
Regulatory • Mid-year: copper anchor products
process withdrawal and 111 codes • Commission required to review
• Q4: Draft Price Quality copper pricing framework no later
path decision than 2025
Price caps + inflation
Pricing subject
Price caps + annual inflation adjustment on adjustment on fibre voice and
Fibre pricing to price quality
contracted UFB products broadband ‘anchor’, and direct
determination
fibre access service
Copper in Copper network to be deregulated and service can be withdrawn subject to Chorus’ choosing and minimum
UFB areas consumer protection requirements
Copper in Copper pricing in non-fibre areas capped at 2019 levels + CPI
rural areas (Dec 2019: line only $31.68; broadband $42.35)
Extends to UFB2
Unbundling Unbundled fibre available in UFB1 areas on commercial basis
areas
38 24 February 2020 H1 FY20 RESULT PRESENTATIONOptimise
non-fibre
assets
Evaluating our future
network needs
> robust criteria for capital prioritisation, reflecting
network horizons and competitive features
across zones (i.e. UFB, LFC, or Rural)
> review our ongoing property portfolio
requirements
> maximise revenue opportunities from existing
infrastructure assets (e.g. towers, poles)
> continue promoting uptake of our VDSL
vectoring investment in rural and LFC areas
> identify opportunities to work with Government
on bridging digital divides
39 24 February 2020 H1 FY20 RESULT PRESENTATIONGrow new
revenues
Opportunities to leverage our network
▪ 2,000Mbps and 4,000Mbps plans for residential and
business in selected centres
▪ symmetric speeds up and down; new ONT required
▪ Wi-Fi 6 capable devices now available, enabling
enhanced speeds and capacity for more devices
▪ Wi-Fi to dominate indoor connectivity given cost,
performance and device availability
▪ initial Mt Eden space filled; considering more sites
▪ early CDN use case evolving to edge computing
▪ leveraging with other Chorus products (e.g. backhaul)
More to come…..
40 24 February 2020 H1 FY20 RESULT PRESENTATIONDevelop
long term
future of
the
business
Developing our people, capabilities and
operating model
Employee engagement
50
8.4
45
40 8.2
> Organisational change as we move from build to operate 35
8
▪ Customer Network Operations 30
7.8
▪ ongoing shift from legacy to digital platforms 25
> Develop asset management capability for new regulatory 20 7.6
model 15
7.4
> Align supplier partnerships with network needs
10
7.2
5
0 7
May August November February
Net Promoter Score (lefthand axis) Engagement (righthand axis)
41 24 February 2020 H1 FY20 RESULT PRESENTATIONAny questions? 42 24 February 2020 H1 FY20 RESULT PRESENTATION
Appendix A: Connection and market trends
31 Dec 31 March 30 June 30 Sept 31 Dec
2018 2019 2019 2019 2019
1400000 Baseband copper
Unbundled copper 39,000 31,000 24,000 21,000 18,000 Unbundled copper
(no broadband) 1200000
Baseband copper 244,000 233,000 214,000 201,000 192,000
(no broadband) Copper ADSL
1000000
Copper ADSL 374,000 352,000 327,000 304,000 283,000
(includes naked)
800000
VDSL 295,000 283,000 270,000 257,000 242,000
(includes naked) VDSL
600000
Fibre broadband 517,000 556,000 599,000 645,000 681,000
(GPON)
Data services 5,000 5,000 5,000 4,000 4,000 400000
(copper) Fibre (GPON)
Fibre premium 12,000 12,000 11,000 12,000 12,000 200000
(P2P)
Total connections 1,486,000 1,472,000 1,450,000 1,444,000 1,432,000
0 Business premium
31-Dec-18 31-Mar-19 30-Jun-19 30-Sep-19 31-Dec-19
> 1,206,000 broadband connections comprises:
▪ 681,000 fibre (GPON) connections
▪ 525,000 VDSL/ADSL (copper) connections
43 24 February 2020 H1 FY20 RESULT PRESENTATIONAppendix A: Connection and market trends (continued)
Broadband uptake by retailer (all technology) NZ broadband market – by technology
2,000,000 2,000,000
1,800,000 1,800,000
1,600,000 1,600,000
1,400,000 1,400,000
1,200,000 1,200,000
1,000,000 1,000,000
800,000 800,000
600,000 600,000
400,000 400,000
200,000 200,000
- -
Q1 2014
Q4 2016
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q1 2019
Q2 2019
Q3 2019
Q42018
Q1 2019
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Q2 2019
Q3 2019
Chorus xDSL Chorus mass market fibre Chorus premium fibre
Spark Vodafone Orcon Vocus 2degrees Trustpower ROM
Local fibre companies (UFB) Other fibre networks Other xDSL
Vodafone cable Fixed (mobile) wireless Legacy fixed wireless, satellite
Source: IDC Source: IDC
44 24 February 2020 H1 FY20 RESULT PRESENTATIONAppendix A: Connection and market trends (continued)
70.00%
UFB1 uptake
Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
60.00%
50.00%
% uptake
relative to 40.00%
capable
addresses
30.00%
20.00%
10.00%
0.00%
45 24 February 2020 H1 FY20 RESULT PRESENTATIONYou can also read
