However, Forsyth Barr broker Suzanne Kinnaird is maintaining her neutral view on the company, saying there is risk associated with the extra costs for the company by having to spend more money on customers it already has.
The target price for Chorus was cut 20c to $3.70 a share. The shares last traded at $4.18.
The original target of UFB2 was to make fibre available to at least an additional 5%, to reach 80% of the population. The UFB2 announcement on Thursday had the Government adding about $100million to the $210million previous committed and the programme covering 85% of the population by its completion in 2024.
Chorus had the lion’s share of the programme — 84% of the build programme and 35% of the funding, she said.
Ultrafast had 11% of the build and would not use Crown funding support. In Chorus’ case, the $291million it would receive would be in the form of new equity (65%) and new debt (35%).
Chorus expected to draw down the equity first whereas UFB1 was a 50/50 debt/equity split with a one-for-one draw down ratio.
The UFB2 model would help Chorus maintain its debt ratios, although arguably the Crown equity was just an alternative form of debt, Ms Kinnaird said.
Chorus had estimated the cost of communal work for the 168,000 premises (203,000 homes and buildings) to be between $370million and $410million with government funding support at $291million. The balance and any cost risk would sit with Chorus.
Chorus estimated connection costs would average between $1500 and $1700 each in 2017 terms, although it would include non-standard installations. Ms Kinnaird expected those costs to be part of any future regulation pricing calculation.
"Fundamentally, Chorus is investing capital expenditure on customers it already has to a greater extent than originally envisaged. We see this investment as NPV [net present value] negative."
If investors had a view fixed wireless would be a significant competitor or future copper prices could fall dramatically versus fibre, there was an argument the investment would lead to a better result than the counter-factual, she said.
"The trouble we have is Chorus has made a significant and firm commitment to roll out additional fibre across its network."
But the risks Chorus faced in the future were too difficult to quantify.
Forsyth Barr believed fibre would compete against future technologies better than copper. They believed future revenue from fibre services would be higher than those from copper, but not to the extent they fully supported the new investment, Ms Kinnaird said.
