When I was in London a few weeks ago to talk about Structural Separation, the New Zealand example was of course very much on display. The increase in compounded shareholder value of the two companies post-separation (Chorus and Spark) is of course a big argument in favour of structural separation as it demonstrates that it doesn’t harm the shareholders, quite the contrary in fact.
In London though, those who are clearly opposed to a structural separation of BT (including its CEO) try to ignore or disparage the shareholder value argument, stating that Chorus value post-merger went down. That is undeniably true, but the reason is not separation, it’s issues around the copper pricing review post-merger.
This morning, the New Zealand Commerce Commission published its final decision on copper pricing. As anticipated in the draft published last year, the price will be going down, but not by as much as in the earliest benchmark evaluations. So while Chorus is still taking a hit on copper revenues and won’t be compensated for over a year of significantly revenue loss, it finally has certainty on its copper revenues.
The financial market impact has been immediate, as you can see from this Chart CNU taken from the ASX, Sydney. Just today Chorus’ valuation went up close to 30%. More importantly, while Chorus took a massive hit with the initial (benchmarked) copper pricing revision plans, and slowly built its way back up when the ComCom published its (post-analysis) draft, it’s now worth significantly more than it was at de-merger. Since Spark’s value has also gone up over the same period, the argument that separation destroys shareholder value is finally debunked.
And it goes to show that in the infrastructure arena, regulatory certainty is of even greater importance than it is in the vertically integrated telecom world. Predictability is what infrastructure funds crave. Unfortunately, it’s not what regulators are used to, and while the Commerce Commission has clearly learned from all this, others have a lot to learn still.