July/October FY2022 Price Changes
Quote:
Originally Posted by
Snoopy
Currently Chorus charges a regulated price per user that is passed through to the retailer.
HYP2021 Slide 7 shows coming wholesale 'price changes' for Chorus wholesale customers.
Broadband Plan |
FY2020 Pricing |
FY2021 Pricing |
50Mbps |
$42.50/m |
$43.56/m (from 01/10/2021, +2.5%) |
100Mbps |
$46/m |
$47.15/m (from 01/10/2021, +2.5%) |
200Mbps |
$55/m |
$56.38/m (from 01/10/2021, +2.5%) |
1 Gbps |
$60/m |
$56/m (from 01/07/2021, -6.7%) |
What struck me about these price changes is that from October 1st the 1 Gigabit scheme (that's 1,000Mbps) is cheaper than the 200Mbps scheme! That seems very odd. These are wholesale prices of course. So it isn't a given that all retailers will pass these price changes on. Have any forum members out there been informed of upcoming price/speed changes to their broadband plans?
SNOOPY
Average Revenue Per User (ARPU)
I am becoming convinced that increasing ARPU will be a core determinant of of the profitability of Chorus going forwards. But strangely, although Chorus themselves are keen to throw this acronym around in their presentations, I can only find one mention of what this figure actually is. In slide 15 of PR2020 we learn that
"Growing fibre uptake and ARPU: June FY20 $48.42* vs June FY19: $47.50"
This is a note specifically referring to Fibre GPON (Gigabit Passive Optical Networks) revenue of $393m (FY2020) to $294m (FY2019). The little asterisk in my quote leads to another reference which says that the figure for FY2020 has been altered
"*FY20 ARPU adjusted to exclude COVID-19 related industry credits"
The FY2019 figure seems clean though. So I was curious as to how Chorus are doing their ARPU calculations:
ARPU = Broadband Revenue / Broadband Users
To convert that to a monthly figure, divide by 12. Using the figures on pages 21 and 22 of AR2019 I get:
ARPU = 1/12 x ($294m / 0.599m ) = $40.90 (too low)
If I add 'fibre premium (P2P)' to the 'fibre broadband (GPON)' revenue I get
ARPU = 1/12 x (($294m+$74m) / 0.599m ) = $51.20 (too high)
That figure doesn't take into account the growth in the number of broadband users during the year. If I back out the 'fibre premium' P2P revenue and use a linear average of the number of subscribers at EOFY2018 and EOFY2019 then I get:
ARPU = 1/12 x ($294m/ (0.5x(0.599m + 0.433m)) = $47.48 (low, but very close)
That previous calculation assumes a single straight line growth 'curve' represents the change in broadband accounts over the year. AR2019 gives us the half year figure as well. Using that as well will give a better linear interpolation of the growth in broadband accounts:
ARPU = 1/12 x ($294m/ (0.3333x(0.599m + 0.517m+0.433m)) = $47.45 (extra bit of linear interpolation gives a slightly worse result)
I am satisfied that second to last calculation is 'close enough'.
SNOOPY
'Fibre (GPON)' & 'Copper Broadband' ARPU for five years [FY2020 Perspective]
Quote:
Originally Posted by
Snoopy
I am becoming convinced that increasing ARPU will be a core determinant of of the profitability of Chorus going forwards. But strangely, although Chorus themselves are keen to throw this acronym around in their presentations, I can only find one mention of what this figure actually is. In slide 15 of PR2020 we learn that I can
"Growing fibre uptake and ARPU: June FY20 $48.42* vs June FY19: $47.50"
I can
This is a note specifically referring to Fibre GPON (Gigabit Passive Optical Networks) revenue of $393m (FY2020) to $294m (FY2019). The little asterisk in my quote leads to another reference which says that the figure for FY2020 has been altered
"*FY20 ARPU adjusted to exclude COVID-19 related industry credits"
The FY2019 figure seems clean though. So I was curious as to how Chorus are doing their ARPU calculations:
ARPU = Broadband Revenue / Broadband Users
To convert that to a monthly figure, divide by 12. Using the figures on pages 21 and 22 of AR2019 I get:
ARPU = 1/12 x ($294m / 0.599m ) = $40.90 (too low)
If I add 'fibre premium (P2P)' to the 'fibre broadband (GPON)' revenue I get
ARPU = 1/12 x (($294m+$74m) / 0.599m ) = $51.20 (too high)
That figure doesn't take into account the growth in the number of broadband users during the year. If I back out the 'fibre premium' P2P revenue and use a linear average of the number of subscribers at EOFY2018 and EOFY2019 then I get:
ARPU = 1/12 x ($294m/ (0.5x(0.599m + 0.433m)) = $47.48 (low, but very close)
That previous calculation assumes a single straight line growth 'curve' represents the change in broadband accounts over the year. AR2019 gives us the half year figure as well. Using that as well will give a better linear interpolation of the growth in broadband accI canounts:
ARPU = 1/12 x ($294m/ (0.3333x(0.599m + 0.517m+0.433m)) = $47.45 (extra bit of linear interpolation gives a slightly worse result)
I am satisfied that second to last calculation is 'close enough'.
The following revenue figures for 'fibre broadband' and 'copper broadband' are largely taken from the 'Management Commentary' section of the respective annual reports. The 'In summary' table lists the number of connections, whereas the 'Revenue Commentary' lists the revenue attributable to each type of broadband.
Year |
Broadband (GPON) Revenue |
Broadband (GPON) Connections |
ARPU (F) |
Copper Broadband Revenue |
Copper Broadband Connections |
ARPU (C) |
FY2015 |
$29m |
75,000 |
$? |
$268m |
1,132,000 |
$? |
FY2016 |
$60m |
167,000 |
$37.19 |
$456m |
1,059,000 |
$34.69 |
FY2017 |
$123m |
292,000 |
$44.66 |
$501m |
894,000 |
$42.75 |
FY2018 |
$198m |
433,000 |
$45.52 |
$421m |
754,000 |
$42.58 |
FY2019 |
$294m |
599,000 |
$47.48 |
$344m |
597,000 |
$42.44 |
FY2020 |
$393m |
740,000 |
$48.92 |
$271m |
466,000 |
$42.49 |
Notes
1/ Sample ARPU calculation for Fibre Broadband (GPON) for FY2019:
ARPU = 1/12 x ($294m/ (0.5x(0.599m + 0.433m)) = $47.48
2/ Fibre GPON customers for FY2016 = Fibre 'Mass market' Customers for FY2016
Fibre GPON Revenue for FY2016 and FY2015 taken from Appendix 3, Slide 36 , in PR2017.
3/ Fibre GPON customers for FY2015 estimated as: 88,000 - 13,000 = 75,000
4/ Copper broadband numbers for FY2016 and FY2015 are from Slide 5 of the Chorus PR2016.
5/ Copper broadband revenues for FY2016 and FY2015 are from Appendix 3, Slide 36, in PR2017
Why is this table important? The first ARPU column is representative of the business being gained as fibre broadband is being rolled out across the country. The second ARPU column represents business being lost as copper broadband is gradually retired and replaced with fibre broadband. It is heartening to see the ARPU being gained is greater than the ARPU being lost , even if such a superficial statement does not tell the full story (more on this later).
I talk of copper broadband as a 'legacy technology'. Yet it is surprising how recently the likes of copper VDSL was the latest in broadband technology and still in its growth phase (revenues sharply rose between FY2015 and FY2017). The calculated ARPU is consistent with the wholesale /Dial Up (remember that?)/ ADSL/VDSL/ bill being fairly steady over the time-frame of this table. By contrast the ARPU for Fibre GPON is steadily rising. This is consistent with, on average, a higher number of higher specification Fibre Broadband plans being sold as the years go by.
SNOOPY
Recategorising Connections
The FY2018 annual report lead to a recategorisation of Chorus customers into different reporting classes.
|
Connections FY2017 (from AR2017) |
Connections FY2017 (from AR2018) |
Baseband Copper |
976,000 |
313,000 |
Naked Unbundled Bitstream Access (Broadband using Chorus Equipment) |
213,000 |
|
Naked Unbundled Copper Baseband IP (Voice) (using Customer Equipment) |
18,000 |
|
Copper VDSL |
|
244,000 |
Copper ADSL |
|
650,000 |
Unbundled Copper Local Loop (Voice & Broadband using Customer Equipment) |
81,000 |
|
Sub Loop Extension Service (Connecting Customer Equipment to Chorus) |
1,000 |
|
Unbundled Copper |
|
82,000 |
Data Service over Copper |
8,000 |
8,000 |
Fibre (mass market / GPON) |
292,000 |
292,000 |
Fibre (Premium Business) / Premium (P2P) |
13,000 |
13,000 |
Total Connections |
1,602,000 |
1,602,000 |
The main disconnect between the two reporting regimes is how the copper customers are distinguished. The purpose of this post is to try and figure out how to disentangle 'copper broadband' figures when they are reported under the old naming regime (In Annual Reports FY2017 and earlier). However, I now find this information has been 'retrospectively disclosed' in PR2017 Appendix 3. That takes away the purpose of this exercise. So I will leave this post as an 'unfinished symphony'.
SNOOPY
Future NPAT drop baked in: The fibre/copper revenue imbalance [FY2020 perspective]
Quote:
Originally Posted by
Snoopy
Year |
ARPU (Fibre) |
ARPU (Copper) |
FY2016 |
$37.19 |
$34.69 |
FY2017 |
$44.66 |
$42.75 |
FY2018 |
$45.52 |
$42.58 |
FY2019 |
$47.48 |
$42.44 |
FY2020 |
$48.92 |
$42.49 |
Why is this table important? The first ARPU column is representative of the business being gained as fibre broadband is being rolled out across the country. The second ARPU column represents business being lost as copper broadband is gradually retired and replaced with fibre broadband. It is heartening to see the ARPU being gained is greater than the ARPU being lost, even if such a superficial statement does not tell the full story
(more on this later).
Wholesale Broadband Operator |
%ge Nationwide Connections |
EOFY2020 Connections {A} |
EOFY 2020 Premises Passed {B} |
%ge Regional Take Up {A}/{B} |
Chorus |
72% |
725,000 |
1,209,000 |
60.0% |
Northpower |
2% |
19,000 |
33,000 |
57.8% |
WEL Networks |
14% |
145,000 |
237,000 |
61.2% |
Enable |
12% |
117,600 |
187,000 |
62.9% |
|
Total |
100% |
1,006,600 |
1,666,000 |
60.4% |
Notes
1/ The end of the financial year is, for all four operators, on 30th June.
The most important figure in the above table, for Chorus investors, is the one in bold. Chorus owns 100% of the legacy copper network. So as users progress to fibre, they will eventually lose all of their copper legacy network, but only retain around 72% of the replacement fibre network. This means that although transitioning from the copper network will overall mean a boost in funding for pure fibre network owners, the expected 'gain' in revenue at Chorus is a little different.
Weighted Average Fibre Monthly Revenue Gain Per User |
72% x $48.92= $35.22 |
less Weighted Average Monthly Copper Revenue Lost Per User |
100% x $42.49= $42.49 |
equals Weighted Average Overall Monthly Revenue Change Per User |
-$7.27 |
Yes you did read that right. As the fibre transformation wave wafts over the country, Chorus can expect to lose on average $7.27 MRPU for every customer transitioned to fibre! In Australia they are forecasting around 70% of old copper network premises will eventually transition to fibre. The remainder will transition to fixed wireless or have no fixed line at all (relying instead on mobile communications not associated with any physical address).
If we use this 70 percent transition figure in an NZ context (an incremental 10% over where we are now), and assume we are sitting at at 60% take up rate right now, we can work out how much revenue Chorus can expect to lose from here on in, as 'NZ as a whole' transitions to fibre:
$7.27 per month x 12 months x 120,900 users transitioning = -$10.5m over a year, but echoing down all future years as well, from the remaining copper users expecting to transition from copper to fibre.
Based on last years NPAT figure, that represents a permanent NPAT profit decline of (0.72 x10.5m) / $52m = 15% ($7.6m in dollar terms).
This is in sharp contrast to the other broadband providers who are only making gains in the copper to fibre transition. To combat these impending ongoing revenue losses, Chorus will be under pressure to shut down the copper network where they can to avoid duplicating capital spend and maintenance.
SNOOPY
'Fibre' / 'Copper & Other' Revenue Trends (FY2020 perspective)
Quote:
Originally Posted by
Snoopy
5/ Forecast fibre revenue from 26-03-2021 'Initial Asset Value' Presentation, slide 3. (FY2021 and FY2023 values interpolated).
Chorus have not provided any forecast as to where they expect their non-fibre revenue to go over the next few years. I have inspected the five year revenue trends for:
1/ 'copper connected revenue' and
2/ 'field services, value add network services and infrastructure'
as two groups. The latter group I am forecasting constant revenue of $120m over FY2021 to FY2024 inclusive. The 'copper connected revenue', comprising 'copper based broadband', 'copper based voice' and 'data services copper' have over HY2021 already declined on an annualised basis (that means no further deterioration over FY2021) of $70m. So I am forecasting an $80m decline over FY2021, $70m over FY2022, $60m over FY2023 and $50m over FY2024. The diminishing decline rate I am modelling to take account of a slowing trend as easy conversions to fibre have happened already. My table of forecast 'total change of revenue' over the period of interest is as follows.
|
FY2016 |
FY2017 |
FY2018 |
FY2019 |
FY2020 |
FY2021F |
FY2022F |
FY2023F |
FY2024F |
Fibre Revenue |
$133m |
$202m |
$276m |
$368m |
$468m |
$592m |
$715m |
$735m |
$755m |
Fibre Revenue Increment |
|
+$69m |
+$74m |
+$92m |
+$100m |
+$124m |
+$123m |
+$20m |
+$20m |
Fibre Revenue Increment Percentage |
|
+51.9% |
+36.6% |
+33.3% |
+27.2% |
+26.5% |
+20.8% |
+2.8% |
+2.7% |
Non-Fibre Revenue |
$875m |
$838m |
$714m |
$602m |
$491m |
$409m |
$339m |
$279m |
$229m |
Non-Fibre Revenue Decrement |
|
-$37m |
-$124m |
-$112m |
-$111m |
-$82m |
-$70m |
-$60m |
-$50m |
Non-Fibre Revenue Decrement Percentage |
|
-4.3% |
-14.8% |
-15.7% |
-18.4% |
-16.7% |
-17.1% |
-17.7% |
-17.9% |
Total Revenue |
$1,008m |
$1,040m |
$990m |
$970m |
$950m |
$1,001m |
$1,054m |
$1,014m |
$984m |
Points to note on the above table
1/ The last four columns are 'forecasts' which is a sophisticated way of saying 'guesses'. The guesses are educated (the fibre bit by Chorus and the rest by me) but they could be wrong!
2/ Net migration of people to New Zealand from April 2020, thanks to Covid-19, has been near zero (previously around 5k per month), which has removed a tailwind of probable new customers.
3/ Spark and Vodaphone, now joined by Two Degrees, have stepped up their plans to sell 'fixed mobile' services over their mobile networks. These are lower cost competitors for Fibre Broadband for light broadband users. There is also a transition underway to 5G mobile networks. 5G is a more serious competitor to fibre broadband.
I believe that:
3i/ the aforementioned fixed mobile competition, PLUS
3ii/ the not as yet widespread adoption of 8k streaming video AND
3iii/ the slow take up of virtual reality gaming AND
3iv/ the fact that the fibre broadband roll out is coming to an end (the supply of customers just waiting to jump on has gone).
....means there is little justification for another incremental jump in access speed by consumers (and consequent higher broadband prices) right now. Hence the reason behind the forecast slowing in the growth of fibre broadband revenue.
4/ The carrying value of copper cables at EOFY 2020 was $360m and last year depreciation on those cables was $60m. This points to an accounting life going forwards (assuming no additions or disposals) of 6 years, starting from EOFY2020. Of course 'accounting life' and 'useful asset life' are not always the same thing. But we can say that if the copper network was effectively decommissioned by EOFY2026 (just five years away) that would not cause a ripple in the accounts. My somewhat aggressive forecast reductions in copper revenue up until EOFY2024 reflects this. Yet I do expect some legacy copper network which is not economical to replace with fibre or wireless systems to remain. That means I am not assuming the copper network will be completely dead by EOFY2026.
So how is my forecast going so far? Q4 2021 operational figures were released by Chorus today. So I will discuss that.
SNOOPY