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Profitable Chorus talks up peering, Wi-fi 6, move away from copper

Peter Griffin, Contributor. 25 August 2020, 9:18 am
Profitable Chorus talks up peering, Wi-fi 6, move away from copper

The company that runs the ultrafast broadband network yesterday posted a $52 million profit for the year to June 30, a period in which the company faced its "greatest ever test".

The pandemic saw an unprecedented load placed on both the copper line network that Chorus inherited from Telecom as well as the UFB network it is rapidly transferring customers to. 

Chorus chief executive, JB Rousselot, said yesterday that broadband traffic increased by around 35 per cent during the lockdown.

"In July, before Auckland moved back into alert level 3, we announced the commissioning of two new multi-terabit core routers that increase network capacity in the Auckland area by more than 200 per cent," he said. 

"Behind the scenes, we work with the broadband retailers to fast-track the handover and backhaul capacity upgrades they need to keep their services congestion free."

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Covid traffic surge

Those traffic increases are reflected in the numbers broadband providers such as Vodafone have disclosed.

"When comparing Wednesday 12 August) with Wednesday 5 August, fixed broadband data is up 33 per cent in Auckland (alert level 3) compared to just one per cent increase for the rest of NZ (alert level 2)," said Vodafone's wholesale and infrastructure director, Tony Baird. 

"However, we've all turned to our phones - with Aucklanders calling others the most. Mobile phone voice minutes (over 3G) are up 45 per cent in Auckland, vs 32 per cent across the rest of NZ," he added.

Chorus generated earnings (EBITDA) of $648 million for the last year, which was in line with its February guidance. With 751,000 active fibre connections compared to 610,000 in 2019. The network wholesaler is benefitting from the copper-fibre transition, which has plenty of headroom to grow further. 

UFB fibre uptake was at 63 per cent of homes and businesses compared to 54 per cent in 2019.

Cutting copper

Chorus continues to have significant capital expenditure - $663 million compared to $804 million in the previous year. Chorus is keen to avoid ploughing money into upgrading the copper line network where possible and is looking to decommission copper connections where the UFB network is in place, a move that has concerned consumer groups.

"I would like to make it clear that we're not going to switch off the copper network overnight," said Rousselot.

"As we've said before, it will only be where fibre is already available, and on a localised street-by-street basis."

He also played up the innovation that is possible with more investment in fibre.

"We're starting to see interest from local government organisations for 'smart location' connectivity, like CCTV cameras, traffic lights and digital advertising sites," he said. 

"Often these will be switching from existing copper or mobile connections, taking advantage of fibre's higher and more consistent bandwidth."

Chorus, he added, was developing a series to allow retail broadband providers to more easily expand their services nationally. Chorus would also launch a peering service in late 2021 in conjunction with the New Zealand Internet Exchange, a move that will please networking experts who have long lamented the convoluted route some internet traffic takes around the country, resulting in higher costs and network latency.

Talking up Wi-fi 6

Wi-fi 6, a much faster and more versatile iteration of the wireless networking technology, was also on the wholesaler's radar.

"Internationally this is considered a potential alternative to 5G in enterprise and other private environments (like airports or stadiums) where cost-effective capacity and support for a large number of devices is important," said Rousselot.

That sees a tension between Chorus and its retail players such as Spark and Vodafone which are heavily pushing 5G, in some cases, as an alternative to fibre connections. 

But the relatively good health of Chorus suggests the UFB experiment in New Zealand, has largely been successful, with faster internet speeds and more affordable broadband as a result.

Chorus results - the breakdown

Summary

    Final EBITDA result in line with February's guidance of $640 - $655m
    Net profit after tax was $52m (FY19: $53m)
    Operating revenue for the period was $959m (FY19: $970m)
    Operating expenses were $311m (FY19: $334m)
    Capital expenditure $663m (FY19: $804m)
    Depreciation and amortisation for the period was $402m (FY19: $393m)
    Earnings before interest and tax of $246m (FY19: $243m)
    Final, fully imputed dividend of 14 cents per share
    751,000 active fibre connections (FY19: 610,000) UFB1 fibre uptake at 63% of homes and businesses (FY19: 54%)
    *Earnings before interest, tax, depreciation and amortisation (EBITDA).

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