Chorus Limited (NS) — Interim / Quarterly Report 2017

Apr 11, 2017

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Q3 FY17 Connections Update 12 April 2017

Q3 FY17 OVERVIEW

> Total fixed line connections declined by 39k to 1,639,000 and total broadband connections declined by 15k to 1,199,000

• local fibre companies continued to grow their fibre connections and vertically integrated retailers are promoting wireless networks to their customers in rural and urban areas

> Migration to copper VDSL and fibre continues at pace

• March was Chorus’ busiest ever month for fibre connection activity (new build and intact)

• fibre uptake across all Chorus UFB areas is now 34%, with Blenheim leading at 40% uptake

• 40% of broadband connections now on VDSL or fibre

• 2/3 fibre connections are on 100Mbps plans or better

• new VDSL and fibre RSP campaign commenced in April

> Online video consumption driving significant increase in data traffic at peak times

• 973Gbps average network throughput at 9pm in March 2017, up 49% from March 2016

• 135GB average monthly household data usage in March (113GB average on copper; 215GB on fibre)

2

Q3 FY17 CONNECTIONS UPDATE

CONNECTIONS

Fixed line connections	31 March 2017	31 March 2017	31 Dec 2016	31 Dec 2016	30 Sept 2016	30 June 2016
Baseband copper	1,044,000		1,109,000		1,167,000	1,221,000
Naked copper(UBA/VDSL)	211,000		207,000		204000	197,000
					,
UCLL	89,000		98,000		103,000	108,000
SLU/SLES	1,000		1,000		2,000	2,000
Baseband IP	13,000		10,000		9,000	9,000
Data services over copper	9,000		9,000		10,000	10,000
Fibre(mass market + premium business)	272,000		244,000		216,000	180,000
Total fixed line connections	1,639,000		1,678,000		1,711,000	1,727,000
Broadband connections	31 March 2017	31 Dec 2016		30 Sept 2016		30 June 2016
Copper UBA(includes naked UBA)	716,000	784,000		847,000		900,000
VDSL(includes naked VDSL)	224,000	199,000		179,000		159,000
Fibre(mass market)	259,000	231,000		203,000		167,000
Total broadband connections	1,199,000	1,214,000		1,229,000		1,226,000
3 Q3 FY17 CONNECTIONS UPDATE

KEY CONNECTION TRENDS – Q3 FY17

> Key connection trends Q3 FY17 :

• total broadband connections reduced by 15k in Q3 (Q2 -15k) as local fibre companies continued to grow their fibre connections and vertically integrated retailers promote wireless networks to their customers in rural and urban areas.

• 40% of broadband connections are now on VDSL or fibre, up from 35% at 31 December.

• fibre connections grew by 28k in Q3 (Q2 +28k) despite the summer holiday period.

• VDSL connections grew by 25k in Q3 (Q2 +20k) as retailers promoted it more widely.

• copper voice only lines continued to reduce, driven primarily by the reduction in UCLL connections (-9k in Q3) as UCLL customers migrate to fibre or other broadband products.

Indicative change by area	Indicative change by area	Non-UFB1 areas	Local Fibre Company	Chorus UFB1	TOTAL CHANGE
			UFB1 areas	areas
Q3	Broadband	-7,000	-11,000	+3,000	-15,000
FY17	Copper voice only (incl UCLL)	-5,000	-5,000	-14,000	-24,000
	TOTAL	-12,000	-16,000	-11,000	-39,000

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Q3 FY17 CONNECTIONS UPDATE

BETTER BROADBAND CAMPAIGN

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• New nationwide campaign to upgrade customers to fibre, or VDSL as a stepping stone to fibre, commenced in April

• from 3 April to 30 September, Chorus is supporting RSPs with contributions to modem costs for qualifying connections upgraded to fibre or VDSL:

  • $150 per connection for ADSL to fibre (100Mbps+) upgrades

  • or $100 per connection for ADSL to VDSL upgrades

• above the line campaign due shortly

• 240,000 address checks in Q3 on www.chorus.co.nz/broadband-checker. Further enhancements to indicate likely VDSL speed at time of address check.

• rollout of new Dynamic Line Management technology underway to automatically optimise ethernet-based ADSL and VDSL line settings for speed and stability.

  • initial testing in Wairarapa area resulted in a 12% increase in download speeds on average , while VDSL upload speeds increased 40%

Q3 FY17 CONNECTIONS UPDATE

FIBRE UPTAKE & USAGE

• 34% uptake with 243,000 connections within UFB deployed footprint (32% uptake and 216,000 connections at 31 Dec 2016)

• 93% of Q3 net adds were on 100Mbps plans or higher

>

• 135GB average monthly household data usage in March 2017 (89GB in March 2016)

• 113GB average on copper

• 215GB on fibre

• 66% of mass market fibre plans now >100Mbps

Total mass market fibre uptake by plan type

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100
90
80
70
60
% of
50
plans
40
30
20
10
0
Mar-16 Jun-16 Sep-16 Dec-16 Mar-17
<100Mbps 100Mbps 200Mbps
Gigabit Education Business 100Mbps+
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Average Monthly Data Usage (GB) per Broadband Connection

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250
200
150
135
117 123
100 102
89
50
GB
-
Mar-16 Jun-16 Sep-16 Dec-16 Mar-17
Copper Fibre Average
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6

Q3 FY17 CONNECTIONS UPDATE

FIBRE ROLLOUT AND UPTAKE

Chorus fibre connection activity - all NZ

• Rollout 63% complete with 526,000 premises passed (505,000 at 31 Dec 16)

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20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
Connections built and activated Additional connections completed
Orders (net of cancellations and rejections in the month)
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• 708,000 customers able to connect

• 10 days weighted average lead time for fibre connection

• 23k work in progress connections (22k in January)

• 15.5% reschedules (19% in January)

• 29,000 new fibre connections built in Q3

• fibre orders at peak May 2016 levels

• March 2017 highest ever connections (new + intact)

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Q3 FY17 CONNECTIONS UPDATE

UFB UPTAKE BY REGION

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100% BUILD 100% COMPLETE
90%
80%
70%
60%
50%
40%
% uptake relative
to capable 30%
addresses
20%
10%
0%
Jun-16 Sep-16 Dec-16 Mar-17 % of build complete 31 March
Q3 FY17 CONNECTIONS UPDATE
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34% UPTAKE
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BANDWIDTH DEMAND: IT’S ALL ABOUT THE PEAK HOUR

• Online video consumption has driven a 49% increase in peak hour traffic (i.e. ~9pm) on Chorus’ network

• Cisco is forecasting internet video to TV will be 26% of global fixed consumer internet video traffic in 2020.

• 973Gbps network throughput at peak hour in March 2017 vs 653Gbps in March 2016 (see next slide).

• Roy Morgan research suggests nearly 2 in 5 Kiwis had subscription video on demand (SVOD) in the home at the end of 2016, with half a million adding a SVOD service during the year.

• Sky TV reported a new record of 640,000 viewer hours of Sky Go content consumed online in January 2017 and Sky TV subscribers using internet enabled decoders download the equivalent of one night of television viewing each week.

• Cisco predicted global busy-hour internet traffic would grow at a compound annual growth rate of 36% between 2015-2020

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Q3 FY17 CONNECTIONS UPDATE

49% INCREASE IN CHORUS PEAK HOUR TRAFFIC

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MARCH 2016 MARCH 2017
9PM
PEAK 973 Gbps
9PM
6PM
PEAK 653 Gbps
AVERAGE 491Gbps
6PM 3PM
AVERAGE 341Gbps
3PM
6AM
6AM
10
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Time of day
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Note: data represents average of traffic across all days in March, excluding corporate traffic.

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Time of day
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FIXED LINE NETWORKS PROVIDE DEDICATED PEAK TIME CAPACITY

• Chorus designs its network to support peak demand

• fluctuations in fixed line (ADSL, VDSL, fibre) performance typically reflect retailer network constraints.

• Cisco forecasts monthly global data traffic carried via fixed networks (including Wi-Fi traffic from smartphones, iPads, laptops, games consoles and smart TV’s) will double by 2020.

Source: TrueNet

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9PM
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IP Traffic by Access Technology

Source: Cisco VNI: Global Mobile Data Traffic Forecast Update, 2016-2021

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Q3 FY17 CONNECTIONS UPDATE

CONNECTION SPEED HISTOGRAM – 31 March 2017

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160,000
140,000
120,000
100,000 ~500,000+ customers could make the
switch to VDSL or Chorus fibre today
80,000
60,000
40,000
20,000
0
Connection Speed (Mbps)
Number of Connections
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 200
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ADSL ADSL2+ VDSL2 GPON

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Q3 FY17 CONNECTIONS UPDATE

Indicative NZ broadband coverage

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100 No fixed line broadband coverage
Government target (2025)
Rural Broadband Initiative (RBI) 2011-2017
wireless access to 275k homes + businesses. Last 1% to access 10Mbps
110k able to access Chorus fixed broadband: 99% to access 50Mbps
90
57% get 5Mbps+; 50% 10Mbps+; 34% 20Mbps+
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	No fixed line broadband coverage Last 1% to access 10Mbp 99% to access 50Mbps Rural Broadband Initiative (RBI) 2011-2017 wireless access to 275k homes + businesses. 110k able to access Chorus fixed broadband: Government target (2025	No fixed line broadband coverage Last 1% to access 10Mbp 99% to access 50Mbps Rural Broadband Initiative (RBI) 2011-2017 wireless access to 275k homes + businesses. 110k able to access Chorus fixed broadband: Government target (2025	No fixed line broadband coverage Last 1% to access 10Mbp 99% to access 50Mbps Rural Broadband Initiative (RBI) 2011-2017 wireless access to 275k homes + businesses. 110k able to access Chorus fixed broadband: Government target (2025	No fixed line broadband coverage Last 1% to access 10Mbp 99% to access 50Mbps Rural Broadband Initiative (RBI) 2011-2017 wireless access to 275k homes + businesses. 110k able to access Chorus fixed broadband: Government target (2025	No fixed line broadband coverage Last 1% to access 10Mbp 99% to access 50Mbps Rural Broadband Initiative (RBI) 2011-2017 wireless access to 275k homes + businesses. 110k able to access Chorus fixed broadband: Government target (2025
	57% get 5Mbps+; 50% 10Mbps+; 34% 20Mbps+
0 10 20 30 40 50 60 70 80 2011 2017 UFB1 Population within reach (%) Chorus Ultra Fast Fibre (central North Island, lines co.) Enable (Christchurch, council owned) Northpower (Whangarei, lines co.) Fibre to the Node (FTTN) (ADSL2+/VDSL)
					UFB2
	Fibre to the Node (FTTN) (ADSL2+/VDSL)
			Non-UFB population: UFB2 population: UFB1 population:		777,776 423,226 3,746,069
			TOTAL		4,947,061
	Ch
	orus Ultra Fast Fibre (central		,, , premses; . m connections (~70% of UFB1) premses; connections (~85% of UFB2) 460,000 195k premises 23k premises; 12
	UFB1 North Island, lines co.) Enable (Christchurch, council owned)		towns/areas 433,000 ~180k premises 500 premises
	Northpower (Whangarei, lines co.)