CHORUS LIMITED — Interim / Quarterly Report 2020

Apr 8, 2020

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Chorus Limited Level 10, 1 Willis Street P O Box 632 Wellington New Zealand

Email: company.secretary@chorus.co.nz

STOCK EXCHANGE ANNOUNCEMENT

9 April 2020

Chorus Q3 FY20 Connections Update

The Q3 period saw the COVID-19 lockdown, from 25 March, confirm the utility role of fixed line broadband.

Monthly average data usage for March grew to 346GB, up 18% from 293GB in December;

• copper broadband usage grew to 225GB vs 429GB for fibre users, and

• the COVID-19 lockdown is reinforcing the value of unlimited datacaps, with 103GB average usage in just the last week of March, while two-way services such as video conferencing drove 85% greater upload usage during daytime.

Broadband connections grew 4k in Chorus UFB and rural areas, while total broadband connections reduced by 4k to 1,202,000 (Q2 FY20: no change; Q3 FY19: +5k);

• fibre demand remained strong with 32k connections added (Q2 FY20: +36k) despite COVID-19 impacts (i.e. fewer returning students and reduced installations during lockdown in late March),

• strong growth in 1Gbps connections to 105k (Q2: 87k), now 15% of mass market fibre connections, and

• UFB uptake rose from 56% to 58% and fibre was extended past 13,000 more customers.

Total fixed line connections declined by 13k to 1,419,000 (Q2 FY20: -12k; Q3 FY19: - 14k)

• copper voice line reductions continued to moderate in Q3 (Q3 -8k; Q2 -12k).

Authorised by David Collins Chief Financial Officer

ENDS

For further information:

Brett Jackson Investor Relations Manager Phone: +64 4 896 4039 Mobile: +64 (27) 488 7808 Email: brett.jackson@chorus.co.nz

Steve Pettigrew Head of External Communications Mobile +64 (27) 258 6257 Email: Steve.Pettigrew@chorus.co.nz

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Q3 FY20 Connections Update
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9 April 2020

Q3 FY20 overview

COVID-19 lockdown from 25 March confirms utility role of fixed line broadband

• Monthly average data usage for March grew to 346GB, up 18% from 293GB in December

• copper broadband usage grew to 225GB vs 429GB for fibre users

• the COVID-19 lockdown is reinforcing the value of unlimited datacaps, with 103GB average usage in just the last week of March, while two-way services such as video conferencing drove 85% greater upload usage during daytime

• Broadband connections grew 4k in Chorus UFB and rural areas, while total broadband connections reduced by 4k to 1,202,000 (Q2 FY20: no change; Q3 FY19: +5k)

• fibre demand remained strong with 32k connections added (Q2 FY20: +36k) despite COVID-19 impacts (i.e. fewer returning students and reduced installations during lockdown in late March)

• strong growth in 1Gbps connections to 105k (Q2: 87k), now 15% of mass market fibre connections

• UFB uptake rose from 56% to 58% and fibre was extended past 13,000 more customers

• Total fixed line connections declined by 13k to 1,419,000 (Q2 FY20: -12k; Q3 FY19: -14k) ▪ copper voice line reductions continued to moderate in Q3 (Q3 -8k; Q2 -12k)

2

COVID-19: Keeping New Zealand connected

> Our network is supporting exponential growth in broadband traffic

• record evening peak of 3Tbps on 27 March, up from Rugby World Cup record of 2.6Tbps

• we’ve offered to enable existing connections in up to 50,000 non-broadband homes, free-of-charge for six months, to support government initiatives for online schooling

> Field force activity reduced to essential work only; focus on maintaining workforce capability

• UFB2 rollout, subdivision and proactive work paused, while network restoration continues

• we are working closely with service companies to identify support for them and our technician workforce, in the context of their significantly reduced workflow/revenue, so they can quickly return to extending the fibre network and connecting a backlog of customers post-lockdown

> We’re working with RSPs to address industry-wide challenges

• fast tracking handover and backhaul capacity upgrades that keep services congestion free

• CPI increase on wholesale charges delayed until October, possibly longer

• introducing a process for RSP business customers so they can temporarily disconnect lines to limit network charges while they aren’t trading, and waiving our reconnection fee

3

COVID-19: post lockdown connection impact

• Fibre installations have slowed significantly to ~100 per day vs ~650 prior as a result of alert Level 4 restrictions

• broadband installations limited to premises with no existing fixed line broadband, or customers with essential business or educational requirements not met by an existing broadband service

• number of active connection crews has reduced from ~640 pre-lockdown to ~260

• we have suspended our door-to-door fibre migration programme, but have a new RSP incentive campaign focused on ~50k addresses where fibre is ready to activate remotely

• non-essential installations are currently being scheduled to resume in May, with WIP expected to grow from current level of 18k orders

> Broadband service upgrades are continuing via remote provisioning

• 1Gbps upgrade orders grew ~50% in the first two weeks of lockdown; 3k upgrades to 1Gbps were completed in March (excluding RSP bulk migrations)

• ADSL to VDSL upgrades have also increased since the lockdown began

• Expect to see an increase in network disconnections as economic slowdown affects businesses and our temporary disconnection process is utilised

4

Fibre now makes up 51% of Chorus connections

	31 March	30 June	30 Sept	31 Dec	31 March
	2019	2019	2019	2019	2020	1400000	Baseband copper
Unbundled copper (no broadband)	31,000	24,000	21,000	18,000	17,000	1200000	Unbundled copper
Baseband copper (no broadband)	233,000	214,000	201,000	192,000	185,000	1000000	Copper ADSL
Copper ADSL	352,000	327,000	304,000	283,000	261,000
(includes naked) VDSL (includes naked)	283,000	270,000	257,000	242,000	228,000	800000		VDSL
Fibre broadband	556,000	599,000	645,000	681,000	713,000	600000
(GPON)
Data services	5,000	5,000	4,000	4,000	4,000	400000
(copper)								Fibre (GPON)
Fibre premium	12,000	11,000	12,000	12,000	11,000	200000
(P2P)
Total connections	1,472,000	1,450,000	1,444,000	1,432,000	1,419,000	0		~~Business premium~~
						31-Mar-19		30-Jun-19		30-Sep-19		31-Dec-19		31-Mar-20

> 1,202,000 broadband connections comprises:

• 713,000 fibre (GPON) connections

• 489,000 VDSL/ADSL (copper) connections

5

1Gbps plans grew from 13% to 15%

Total mass market fibre uptake by plan type

32,000 mass market fibre connections added

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100 Business/Education plans
1Gbps $60 p.m.
90
200Mbps
$55 p.m.
80
70
60 100Mbps $46 p.m.
% of
plans 50
40
30
20
10
50Mbps $42.50 p.m.
0
Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20
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▪ 1Gbps connections grew from 87k to 105k, helped by RSP migration of 200Mbps customers, and now represent 15% of mass market fibre

• 100Mbps retained 70% share at 494k

• 50Mbps connections were flat at 88k or 12%

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Fibre plan movement by quarter
30
Q1 Q2 Q3
20
Change in
connections
(‘000s) 10
0
-10
50Mbps 100Mbps 200Mbps 1Gbps
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Connection changes by Zone (indicative)

• Chorus UFB zone: 3k broadband growth despite signs of wireless migration of copper broadband customers earlier in Q3 and lower fibre volumes in March as a result of COVID-19, while copper voice line loss continued to slow

• LFC zone : a clear reduction in VDSL disconnects in March, with LFC and wireless competition in prior months moderatingN/C

• Rural : positive broadband growth, with VDSL/fibre adds exceeding ADSL reductions

	Chorus UFB zone*	Rural (non- UFB) zone	Local Fibre Company UFB zone
Total connections at 31 March**	1,094,000	196,000	114,000
Broadband connections	972,000	155,000	75,000
Copper (no broadband) connections	122,000	41,000	39,000

• Includes planned UFB1, 2 and 2+ coverage

**Excludes 15k fibre premium and data services (copper) connections

Change in connections (‘000s) by zone**

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-15 -5 5 15
Q1 -3 -7 LFC
Q2 -2 -7 Zone
Q3 -2 -8
Q1 -2 1
Rural
Q2 -2
Zone
Q3 -11
Q1 -11 16
Chorus
Q2 -8 7 UFB Zone
Q3 -5 3
Broadband connections
Copper (no broadband) connections
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7

Broadband mix in Chorus planned UFB zone

80% of Chorus broadband connections in Auckland on fibre

Fibre now 71% of Chorus broadband connections in planned UFB zone

Chorus’ Auckland broadband connections by type (%) 9 11 80 Fibre

No. of connections

1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0

Copper - VDSL

Copper - ADSL

ADSL VDSL Fibre

8

UFB rollout 87% complete

> UFB uptake increased from 56% to 58% within completed footprint

• uptake in UFB1 areas grew from 58% to 60%

• uptake in UFB2 areas grew from 34% to 35%

• (note: uptake includes some UFB2 areas that have been partially built, but not yet submitted for Crown sign-off)

• 695,000 connections (Q2: 664,000) now within completed footprint, including business premium

• 1,198,000 customers able to connect (Q2: 1,185,000)

• 920,000 premises passed (Q2: 909,000) out of 1,054,000 target = UFB rollout 87% complete

> 38,000 fibre installations completed in Q3 (Q2: 45k)

• customer satisfaction increased from 7.8 to 7.9

• 9k installations through our managed migrations programme

Fibre installations (NZ wide)

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20,000
FY18 FY19 FY20
18,000
16,000
14,000
12,000
10,000
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8,000
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July Aug Sept Oct Nov Dec Jan Feb Mar April May June

9

UFB1 uptake: 60%

% uptake relative to capable addresses

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70.00%
Jun-19 Sep-19 Dec-19 Mar-20
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
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10

Monthly average data usage grew 18% in Q3

Monthly average data usage per connection on our network

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450
429
400
363
350 346
300
293
Data
usage 250
(GB) 225
200 200
150
100
50
Copper Fibre Average
0
Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20
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• monthly average data usage per connection on our network grew to 346GB in Q3, up from 293GB (Dec)

• 429GB on fibre (Dec:363GB)

• 225GB on copper (Dec:200GB)

• data usage in the last week of March averaged 103GB as New Zealanders spent time at home for the COVID-19 lockdown

• the increase in data needs is driving increased consumer awareness of datacap limitations, along with upload/latency requirements

• continued growth in demand for EdgeCentre colocation capability in Auckland; extending footprint to Tauranga

11

COVID-19 effect on network traffic

• Download traffic set a new record of 3.03Tbps on 27 March, well within Chorus’ network capacity.

• Daytime upload traffic has grown ~85% as Kiwis use services such as video conferencing, requiring greater bandwidth and low latency (latency above 30ms can result in poor experience of applications such as gaming and video calls – see Measuring Broadband NZ, Spring Report, December 2019 - Figure 13).

Chorus download traffic

Chorus upload traffic

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12