How Chorus built our $5.5B world-class fibre network

Published Nov 20, 2024, 6:13 PM

Mark Aue, CEO at Chorus, tells us how a Spark spin-off became NZ's largest telecommunications infrastructure company, putting New Zealand 17th globally in fibre uptake—ahead of Australia and the UK.

Chorus has spent $5.5 billion building a national fibre network to become the country’s definitive network operator. But they’re also one of New Zealand's largest property owners, with over 600 exchanges, 200,000 light poles, and 1,200 high sites—potentially a huge revenue opportunity.

Meanwhile, Deloitte projects that their network could pump $33 billion annually into New Zealand's economy by 2033, while the average Kiwi household is now chewing through 600GB of data a month—up from 40GB a decade ago. 

But challenges remain: Mark shares how Chorus is pushing to expand coverage to the last 13% of the population and managing the complex exit from legacy copper networks. Plus, the fight against digital inequality, with one in five New Zealanders still digitally excluded. 

For more or to watch on YouTube—check out http://linktr.ee/sharedlunch

Shared Lunch is brought to you by Sharesies Limited (NZ) in New Zealand and Sharesies Australia Limited (ABN 94 648 811 830; AFSL 529893) (collectively referred to as ‘Sharesies’). 

Appearance on Shared Lunch is not an endorsement by Sharesies of the views of the presenters, guests, or the entities they represent. Their views are their own. Shared Lunch is not personal financial advice and provides general information only.  Past performance is not an indication of future performance. We recommend talking to a licensed financial adviser. You should review relevant product disclosure documents before deciding to invest. Investing involves risk. You might lose the money you start with. Content is current at the time.

 

Kiota.

Welcome to Shared Lunch, brought to you by Shares's. My name is Susanna Batley and I'm the general manager of Shares's business. In today's episode, we'll be talking to Mark Owah, CEO of Chorus. We'll be talking about the huge potential that digital infrastructure can offer our tetoa, as well as what's next for the talco. Before we get started, though, here are some important information.

Investing involves risk you might lose the money you start with. We recommend talking to a licensed financial advisor. We also recommend reading product disclosure documents before deciding to invest. Everything you're about to see and here is current at the time of recording.

Hi.

Mark, welcome to Shared Lunch.

Thanks you, Sanna, thanks for having me.

I'm really excited to get into this conversation about Chorus, but before we do that, I'd like to start with you back. You've had over two decades in the industry across the UK, Australia and are Tetoa, and you've also had previous roles as CEO of Two Degrees as well as CFO of voteraphone New Zealand which is now one New Zealand. So what first attracted you to the sector, and why have you stayed there so long?

It's fast paced. I enjoy technology and I enjoy change, but I think what's really kept me in the industry, both overseas and coming back home to New Zealand is that ability of connectivity to truly shape and enable better futures. And it's helping to shape the way that we live from an intergenerational impact, and I love that generally for the better.

You'd say quite a few people that have worked at two degrees talked about how much you took that purpose approach to the organization two degrees obviously in the B two C space in the retail space. How does that change being at Chorus and as a B to B player?

Yeah, look, I mean purpose for cause is something I'm really personally passionate about. I have five children, so I've I want to leave this place in a better state than when I joined it. And two degrees was such an amazing place to be able to put that foundation of a core purpose in there, and that was around fighting for fear to make New Zealand a better place to live, and that was the key challenge that decisions that the business was taking If it wasn't making New Zealand a better place to live, then we should stop it. And that's the whole beauty of purpose when it actually builds some momentum and that you can truly drive positive societal outcomes. And so we're trying to do the same thing in Chorus now, but albeit coming from a slightly different perspective, and we talked about unleashing potential through creativity and enabling better futures for altiet Or and again I think that goes back to my view of what's kept me in the industry as well, and being able to improve lives and help shape them for future generations. And whether you're in a B two C or in you're a B to B space, that the ability of large enterprise to actually drive positive society or outcome is really material.

And the origins of Chorus was that it was originally spun out of Telecom, which for those old enough like myself remember as the former Spark.

Could you talk a bit.

About why Corus started, why it was spun out of Spark or Telecom back then, and then also a bit about the business today.

Sure, I mean you go back to two thousand and eight and that's where the first proposals were to bring high speed fiber connectivity to the majority of New Zealand. And back then you'd recognize there was a fair amount of pushback to doing this, but you actually had a small group of visionaries that really pushed for that change and had the courage and the persistence to keep doing it when actually very few markets or countries around the world were even doing that. And it was premised on creating an open access platform and network built off a public and private partnership, which I think we could all recognize now and looking back that this is probably one of the most successful examples of private and public working together in partnership to deliver now what is an amazing network by global standards, and we bat well above our weight, you would say from a New Zealand perspective, You're right. It was spun out of Telecom, as it was for those old enough, and I certainly am, but that was essentially so that Telecom could actually compete as part of the UFB, the Ultra Fast Broadband Initiative, and so it spun off the retail arm which we know today is now Spark and the wholesale arm of actually building, running, managing, maintaining the fiber networks into what we see as chorus today, you know, and that's where we see ourselves today from a retail to a wholesale perspective. We are the wholesale partner of the fiber network and also copper, but we're getting out of copper. Fiber is the gold standard that you would look to. But our roles around that ongoing investment, maintenance, running the network, working with the retail service providers the RSPs as they're known, to provide the products, the plans and the network essentially that they then are selling into market from a retail perspective.

And just going into those retail sellers or resellers that you work with, you've obviously worked for them before running running through degrees and at votafone New Zealan or one New Zealand, as we mentioned at the start, do you see them just as partners or are they starting to become competition as well?

How does that dynamic dynamic work?

Well, look, competition is definitely alive and well I think you know where today we have five G fixed wireless and five G is a very different product to four G from a wireless broadband perspective, and that's there's competition in market now for some of those fiber customers. And you know, to be clear, there is a market for multiple broadband technologies. You know, we're seeing that advent with Starlink and the Leo satellites as well and the exit progressively from data legacy copper technology. But yeah, they are our partners, We work with them, we work through them to actually grow our own fiber customer base. But equally, yes, recognizing they are also competitors.

A Deloitte report earlier this year say to that the digital fiber network has the potential to bring in thirty three point two billion dollars to the New Zealand economy by twenty thirty three. What do you see the potential barriers to us being able to realize this sort of benefit on the scale.

Yeah, and it was a great report from Deloitte. And actually that thirty three billion dollars by twenty thirty three is just the annual benefit. You know, when you're actually looking at the cumulative benefit between now out to twenty thirty three, is that over one hundred and sixty billion dollars of economic benefit. And I think again that's a testament to that vision back in two thousand and eight to actually bring this network to New Zealand. You know some of those barriers, So the first is probably around coverage an expansion of fiber. So today we sit it just over eighty seven percent of our population that are covered by fiber, so thirteen percent the country aren't. We'd see a definite use case to grow that fiber expansion out to ninety five percent. Because of New Zealand's topography and geographic dispersion of the population. Probably doesn't you know, the economics don't work beyond ninety five percent. But actually that's one of the leaders and drivers to getting to recognize that economic benefit is being able to expand it. Today New Zealand ranks seventeenth in the world for fiber uptake, which is quite an amazing stat for a country with five million people. And again the topography that we have to actually build this network, but we've got to stay at the fore of that. You know, those visionaries put us out there when other countries and markets really weren't looking at this. You know, that same ranking, if you compare that to Australia are at fifty fifth the UK at sixty six, so it's nice to be on the right side of those for a change. But expansion is one, digital equities another, so ensuring that no one's really left behind from this digital world today, the government statistics which would estimate one in five people across our sed or are actually digitally excluded, which is roughly about ten percent of households. That seems like a staggering statistic, particularly when you consider that that we're increasingly becoming more digitized, so services like core government or retail services or access to health services that are becoming increasingly digitized, So the risk to being digitally excluded is probably is growing, if anything. So I think those are the two key ones in the third odd call loud as having appropriate regulation, whether that's too new products like fiber or it's too legacy products, and being able to have a pathway to exit from those like copper. You know, a regulatory frameworks need to encourage investment and promote competition, not stifle it. So and I think we've got some work to do in that space.

Yeah, great, and I'd like to circle back on those, you know, on that question whether the regulatory framework is appropriate right now. But on those first two points, on ensuring that the economics work to increase that coverage to whether it's ninety five percent or whatever that number is, and also that social equity point, how do you think about about those economics, because you know, with a new subdivision, for example, I imagine that the economics can look really good because, as I understand it, most of the cost of installation is in thinking those trenches and putting that PI in. And with a new development, you're already doing that with electricity and plumbing and all those other infrastructural requirements that that that new that new dwelling requires. And also you're probably getting high connectivity rates as well with a new development like that if you compare it to say to a small rural town where you might get lower connection rates, and also the cost is higher the marginal cost, because you're having to dig up and do that. But obviously, to your point, from a social equity point of view, it's really really important.

That people are connected.

And given those second order effects, as we're distributing healthcare and all these other services digitally, how do you think about that and how do you sort of balance those objectives.

Yeah, so from a new subdivision development. So we think about that as MPD is our new property development and it's something that that that we work well in across News. The only all the fiber areas that Chorus is involved in, and you're you're absolutely right where the fiber is already existing. And that's the Beau beauty of fiber and why it's so scalable because you're not having to go out and dig up the trenches and change out all the infrastructure every five to ten years. It's actually changing out the equipment at either end. So thinking about the exchanges at one end and the exchange cards, things that become their neighbors or in our homes, our households now where we have the little white box on the wall wherever it might be, and that's called the ANTS, the optical network terminal. So it's really scalable and that's the beauty of fiber. But the costs of delivering fiber when you move outside those fiber areas and you're building new infrastructure, they become exponentially greater. And you know, you can think about an urban example and maybe take my street as an example and say there's fifty homes in the street and they all have a three meter set back from the road. We can have a high degree of confidence around the costs of those and think about the uptake as well. In a rural context, though that same kind of area might have one premise and it's five hundred meters set back from the road, And as great as fiber is, it's these things still cost so that the exponential rate of cost versus the returns that we're getting, those economics actually become a lot less attractive to do that, which is why we then try to work with government around new frameworks that would either mirror or evolve from the original UFB program to actually take fiber further, maybe to that ninety five percent of the population, and interesting at the moment, the government's focus and vision around the Infrastructure Priorities Plan and having that twenty year vision, we'd certainly hope that that has a nod to fiber deployment and repeating the scale and benefits of what we saw out of the original fiber program and actually taking that to the next seven percent. And that same Deloitte report you referred to earlier that recognizes going from eighty seven percent to ninety five percent population coverage, that that's the equivalent of seventeen billion dollars of economic benefit to bringing fiber in high speed broadband connectivity to those regions. Part of whom are going to need to find a solution for digital equity or inclusion. They tend to be the groups like digital seniors, lower income households, or families Mary and PACIFICA, or people's with disabilities. They tend to be the groups that are disproportionately digitally excluded and yet ironically other groups that would benefit the most from actually being involved in this digital world. So it's not just expansion, as we say, it's that digital equity and ensuring that no one's really left behind.

You've come to the end of a very large period of cap x or capital expenditure building the fiber network that effectively replaces the old copper network. What actually happens to the copper network.

Our first challenge is actually having a pathway to exit from copper and this is something that we've pushed with the government and regularly discuss with both government and the Commerce Commission. We need a pathway to exit from legacy technologies that are no longer fit for purpose. You know, there are all better alternatives already available, and if if I talk to that for a second, the Comments Commission themselves recently published a report looking at the non fiber areas of New Zealand, so that thirteen percent of the population and ninety seven percent of those premises can already receive an alternative to copper technology, so either a mobile or an alternative wireless provider. That's before you overlay stalink and satellite services, and so there are already alternatives. So we need to be able to find a pathway to exit from copper. It can't be something that just goes on and definitely it's something that is coorus. Ourselves are saying that these networks are not for purpose. There are better alternatives available, so let's get out of it. And for a dollar spent on copper is not the most efficient or effective use of that dollar spend. You'd prefer to put that into other investment that's going to go to better the country. So that's our first challenge is to have an exit to copper, and then the second is thinking about, well, what's the ability for us to recover that copper or extract it. Not all copper is created equal. There's large gauge small gauge copper, and it's not as simple to actually get it out of the ground either, so but there are use cases actually and you see that around the world of companies actually moving beyond their legacy technology so copper, and actually removing it from the ground.

We'll lease talk a bit more about the regulation.

Obviously a big part of coorus being regulated by the commis Commission and them setting what you can earn.

Can you just talk a.

Bit more about how the regulator currently does that and some of the terminology that we hear such as.

MAR, the MAR, the RAB. The talco industry is renowned for scronyms absolutely, so the RAB is our regulated asset base and which is essentially the capital that's been spent on the network and course today to spent around five and a half billion dollars on building this amazing network. So that's essentially the foundation of our RAB. Now there's a very complicated formula that then the Commerce Commission will work out what the MAR is the maximum allowable revenue. But essentially the regime, the regulated regime set up in order to provide a greater degree of certainty and that Chorus can earn a regulated return on that capital investment. But that complicated formula will take into our whole into account a whole bunch of drivers such as you know your capital spend, your depete depreciation profile, your whack, your asset beader, your leverage, your tax building blocks. So and what it will do at the end is essentially split out a number that would say, based on your regulated asset, based on what you've spent. This is in theory the maximum allowable revenue that Chorus could return could earn over a period, and that's probably where there's a secondary complication to it because Chorus is subject to defined regulatory periods. So our first period PQP one was only three years long, ran from its finishing at twenty twenty f twenty two to twenty five end of twenty twenty four, so that sets it for a three year period. And actually Coorus now for the last year and a half or so has been in this process of doing a submission for our second regulatory period PQP two. We've had earlier this year. Our allowances have been determined by the Commerce Commission, so that sets an envelope for our operating costs and our capital costs, and then we have our MAR determination which is due to come hopefully in early December, and that will again set the framework out for that MAR across what will be a four year period, so this will run to from twenty twenty five through to the end of twenty twenty eight.

You've called for deregulation in the sector this year, and when I think about it, you know, when we look at the lakes of Spark and two degrees in One New Zealand, they all run their own mobile networks. So as you pointed out earlier, you are definitely subject to competition, at least at the margin. And if you're a household where you're not streaming lots and lots or downloading lots and lots then probably using the mobile network as as a viable option. Then you've also got starlink and the lacks of those other players coming in as well, which is a bit different to I guess other industries or other companies that are heavily regulated, like an airport or a Talco line.

You know that you are.

Facing competition and yet still the Commics Commission determines what you can earn. If the industry was to regulated, how would consumers ultimately benefit from that, do you.

Think, well, I mean, i'd point to the Commission earlier this year having done a review for of fiber deregulation or five year regulation as it is, and not seeing enough of a change where you'd say, actually, they're going to step into an investigation. So you know, when I call out regulation and deregulation from a fiber perspective, I think Chorus is subject to a lot more stringent regulation even compared to the other local fiber companies. You know, there are three others through the country. Chorus has a majority of the fiber infrastructure, but we're already doing a lot more than they are having to provide under our regulatory regime. And then your rights c enter you call out from a mobile perspective, it's essentially not there that we don't have the same constraints or regulatory requirements in a wireless world. So it is quite different, and it's something that we'd like to see given competition that starts to actually even out. At the same time, there's a certain degree with fiber regulation that it does provide greater certainty about that framework, so that you know, we've just talked to a regulated framework as well. So I mean from a consumer perspective, it would be a fundamental change because at the moment, Chorus can't retail, so we have our entire frameworks based off being a wholesaler and working with the retail service providers. So changes to deregulation and fiber we'd probably push in the first instance that we're at least only subject to the same regulations that the local fiber companies are. Beyond that, there's regulatory obligations that we have around service availability and performance. And the fiber network, by the way, is the only broadband technology that is regulated to have more supply than there is demand, which is why there's almost this loop of capital investment required because our usage just continues to grow. But Corus is the only one that has that. You think about that from a customer experience perspective about you, But my kids at home pretty quick to tell me when they think the Wi Fi is not working and the broadband's not working, which they can't understand why when their dad does what he does. So anyway, that's a that's a different story. But yeah, that you don't have that same kind of condition conditionality in a wireless world.

Yeah, I was thinking a bit about you know, with boardband, we do we continually expect more for less every year. We expect faster times and more without actually paying a higher monthly bill. So with that in mind, how do you think about growth going forward? Outside of population growth, what are some of the other drivers that can help sort of grow grow the industry?

Yeah, I mean, let me pick up first on the on the data point, because I always I find this quite fascinating, and it goes back to your opening question. You know why this industry because I love how dynamic it is and having access to high speed fiber connectivity has fundamentally changed the way that we all live, learn, work and play. And we saw that even more so during the pandemic for COVID and being at home heavily restricted but still actually being able to work and live and order takeaways and get them dropped at your door. But it's fundamentally changed the way that we live. So, you know, even though it might seem like we're providing the same sort of service as we were back when Chorus first started with the UFB initiative, it's fundamentally changed. To give you another statistic, ten years ago, even the average data usage in New Zealand per month was forty gigabits gigabytes. Sorry, it's now over six hundred gigabytes. We now do the annual usage from ten years ago in just over two weeks. And again I'd say that's a pump for the fiber network because that shows again how scalable it actually is, and it's built for that future. Again, so you know, it's it's something that when you look at the use cases of where that that might grow. Yes, the rate of growth might change and lost late, but I don't think it's ever coming down. So and you think about where some of that growth might be, because that speaks to the industry, you know, as terrestrial TV increasingly and most likely comes to an IP solution as we get to four K mass market. And and what I mean by that is, you know, even though four K has been around for a while, not every household has four K devices, and not every household is actually consuming four K content. Right at the moment, we have I think, on average about I think the average is now twenty six devices connected in our home, which seems crazy, right, but if you actually add them up and you think about the laptops the iPads, the wearables and watches, the TV, the smart fridge, disordering your milk for next week, the security, all your other appliance. It's really not hard to get to twenty six and that's only forecasts to grow even over the next five years to up to over forty devices. So there is growth and scalability in the fiber network itself in terms of where the growth for Chorus comes from. One of the things Chorus is doing now is we're in this transition from what I've termed as Corus is the great network builder to now transitioning to being Coorus is the great network operator, and the fundamentally different capabilities and mindsets. But largely the UFB program has completed a right where past the peak of installs, competition and technology is advancing. The government, regulatory and economic frameworks are evolving, as are the expectations of cooruses, yearholders and other stakeholders. So we need to move as well. Now. Part of that shift to becoming a great network operator is restructuring our teams in the way that we work to more of a matrix model, so thinking more of our three we have three value streams now, which the principally access, So how do we keep growing into our base. We're currently at seventy two percent uptake on all of the premises that we've passed with fiber. We want to grow that to eighty percent, and we see the pathways to actually achieving that. In infrastructure, it's our second value stream. This is a new stream, so it was largely passive previously. So but thinking more backholl wireless, co location revenues, other infrastructure style revenues that have now got dedicated resources, prioritization and investment to actually drive growth and really leverage the core assets that Chorus has because they are amazing and you probably won't appreciate this, but Chorus is actually of New Zealand's largest property owners. We have over six hundred exchanges throughout the country, thousands of those cabinets that we're now busily putting all this beautiful artwork on with local artists. We have over two hundred thousand light poles or poles that have half of which have fiber and power running to them, an awful lot of copper in the ground, and about twelve hundred odd high sites. All of these things are property that reimagined in a different way, actually create an opportunity for Chorus to think about these assets in a different way, leverage them more effectively with our core to what we do, or divest from them as fast as we can. And then that third value stream is what we call frontier, and that's essentially about accelerating our exit from copper and we want to do that by twenty thirty. We need to put a date on that and work backwards on what it is we need to believe. And then equally, as we've talked a bit about expansion and how do we step in that into that in a way that has broader industry engagement. And again looking back to a public and private partnership government.

You recently announced a dividend policy that dividends would grow with inflation. What are the leavers that you need to control in order to be able to achieve that.

Yeah, So earlier this year we did a reassessment in a reset of our capital management policy, and yes, the core pillar of that was around having a growing sustainable dividend at least at the rate of inflation. Now we see that's achievable through the changes that we're making, a lot of which I've just spoken to those stepping into where those growth areas actually are. So eighty percent uptake, becoming an all fiber business focusing on property optimization and other efficiency. There's opportunities for us to grow into that, and that's where that dividend growth we see coming from. But we certainly see choruses an essential digital infrastructure provider, and we can talk about the credicality of it and how we all use our fiber connections today, But that dividend policy and a capital management framework was essentially about us having greater confidence in our cash flows, greater certainty, and our regulatory environments said, we're transitioning now to be that great network operator. So we passed the peak of installs subject to something else happening that would enable further expansion, So we have that greater degree of confidence when we look out to the future.

Now, we can't talk about technology without mentioning AI. You know, you talked about the demand curve, and you know demand's only going to increase, maybe the rate will slow down, but definitely expecting that demand will continue to go up. What if any impact do you see sort of this AI wave that's happening play on that demand curve.

I think it's the next wave that's going to fundamentally change the way we live, which is a little scary when you I mean you could spend the entire day literally just reading AI articles and I think I've got to be careful to because AI has been around for a long time, and even from a chorus perspective and running the network, there's a lot of AI in a network that actually is from an optimization and efficiency perspective and making sure the experience that you have a home with your fiber connection is amazing. It's generative AI that I think has the market all crazy and thinking about the applications for that and llms, you know, with the large language models and New Zealand I think represents a potential opportunity, particularly for data centers and data connectivity from a global perspective as well. I think we've got the last steps. We have over fifty data centers through out New Zealand as well, and there's been a couple of examples that have announced AI training centers and trying to establish those in New Zealand because of part cost of land and access and equally just thinking about the connectivity and connecting back up to the world. But in general, I think it's a watch and see. You know, I think the pace of change that we're seeing it's a little scary, but I think it will be that next wave that fundamentally changes the way we live.

And in terms of just going back to earnings and the regulation by the Comments Commission, are there any parts of your revenue that are not regulated?

Yeah, but twenty percent at the moment. So when I talk to that infrastructure stream, so back hall, co location, other infrast infrastructure style products. So I think Chorus roughly as a billion dollars of turnover, about two hundred million of that's actually in non regulated revenue to the non fiber So obviously that's copper as well at the moment, but that is increasingly on the decline.

And do you see that twenty percent number increasing then over time it has to.

Honestly, there's a part of establishing that value stream for infrastructure was around leveraging our core assets more effectively being one of New Zealand's largest property owners, recognizing those fifty odd data centers, even the connectivity that we get between those data centers and back out over the world, and what's the role that chorus actually plays in that even from a competition slash partner perspective with five G five G when it's truly working as standalone five G which is a different standard of it which we don't have in New Zealand yet, but when one of the mobile operators actually gets to that standlone, that's true five G running at network edge and network's liceing for dedicated enterprise networks, but the same token, you'd still need the back hall for the fiber network to actually make it be as amazing as it could be.

It's where you come in.

Absolutely well, I think we're almost at time, but before we wrap up, I'd love to ask one more question.

We are living in a very connected world.

Obviously, connectivity is really really important for all sorts of benefits, some of which we spoke about today, but also disconnecting is really important as well.

So how do you like to disconnect?

A great question. You know, I'm really big on family, so I'm spending time with my wife Kate and our five children is really important. And you know, we started our session talking about the last couple of decades that I've been involved in the telco industry and actually I've been doing this for probably almost those twenty odd years. But when I'm on leave, I disconnect as much as I can. I love being out in nature. We have so many amazing, great walks around New Zealand and it's amazing to just be out and disconnect and be a lot more mindful about who you're worth where you are. We have such a beautiful country, and I've been fortunate to live in a number of others, but you know, home is home and we should treasure that. And I as much as I'm in the telco industry and have been for a long time, I love disconnecting away from it as well.

I agree.

Well, thanks so much Mark for being on the show. We learned so much today and I really appreciate your time.

Thank you, You're welcome, Thanks for having.

Me, Thanks for tuning in.

You can watch Shared Lunch on YouTube, or you can follow us on your favorite podcast app.

Have a great week.

In 1 playlist(s)

  1. Shared Lunch

    398 clip(s)

Shared Lunch

A conversation with experts, CEOs, and you. We talk to company leaders and industry experts every we 
Social links
Follow podcast
Recent clips
Browse 398 clip(s)