BRIEF: Chorus connection update points to broadband ARPU opportunities
- Publisher : Venture Insights
- Publish Date : July 14, 2023
Chorus connection update points to broadband ARPU opportunities
TLDR version: Chorus issued its latest quarterly connections update this week. Its broadband subscriber count is stable, and its speed tier mix appears to still be shifting to higher speed tiers. Average data usage is growing again, with potential upsides for Chorus versus its competitors. The company also flagged upcoming CPI-linked price rises, another positive for fibre ARPU.
Stable broadband subscriber count, but the mix is shifting
At the end of the June 2023 quarter, Chorus’ reported its broadband base was stable at 1.188 million connections[1], and down just a thousand services year on year. Broadband subscriber losses outside the Chorus UFB Zone are largely being offset by increased uptake within the firm’s UFB footprint. Chorus also claims to be adding greenfield fibre customers in non-UFB areas.
There are two aspects of Chorus’ connection mix that caught our attention in this release:
- Home Fibre Starter (50 Mbps): Launched in April 2022, retailers are required to offer this plan for less than $NZ60pm. It is positioned by Chorus as an entry point into fibre broadband for price sensitive customers. While its share of the base is small, we believe it is making an important contribution to growing the fibre base and defending it from fixed wireless competitors.
- 1Gbps & Hyperfibre: In Q4, connections on 1Gbps and Hyperfibre services made up 44% of net mass market fibre adds. (Q3 FY23: 46%). Chorus is thus continuing to grow the share of these high-speed customers in its subscriber base, a positive trend for ARPU (all things being equal).
Broadband data usage growing again
Average data usage on the Chorus network grew during the initial stage of the pandemic, then surged again in the second half of 2021 with tighter COVID restrictions and Chorus bestowing higher speeds on many of its 100 Mbps customers. Since then, average usage has remained relatively flat.
The return to growth in broadband usage during the latest quarter is a positive for Chorus. Chorus’ fibre network is likely to be more economical for high levels of data usage than its wireless rivals’ networks.
With its competitively priced ‘Home Fibre Starter’ plan serving price-conscious households, and Hyperfibre plans that enable it to monetise high value subscribers, Chorus appears well placed to capitalise on the return to data growth.
We will therefore be watching to see if this uplift is simply the impact of one-off factors (potential weather or seasonal factors), or if it is the beginning of a new period of higher data growth.
Price rises target the bulk of the base, but not the growth plans
Inflation-linked pricing is both an opportunity and a risk for telcos. As we argued in a previous note, (‘Inflation linked pricing is a delicate balancing act’, 29/6/23) telcos need to be mindful of how such prices rises are implemented. Revenue upside needs to be weighed against the public’s dissatisfaction and the risk of churn.
With this in mind, it is worth noting Chorus plans to exclude its Home Fibre Starter, Hyperfibre and Small Business Fibre Max plans from its October price increases. Excluding the entry level ‘Starter’ plan enables Chorus to offer a concession of sorts to budget constrained households, while ensuring the plan remains a competitive alternative to fixed wireless.
At the premium end of the market, narrowing the gap between the 1Gbps tier and Hyperfibre may have a marginal impact on Hyperfibre take-up. It sends a signal that these premium tiers are still a growth opportunity for retailers – despite apparent low interest to date.
Meanwhile, Chorus has flagged “most” of its fibre base will be facing a wholesale price increase of as high as 6.65%, though it will implement a lower increase should the June CPI be lower.
Why does this matter?
The latest connections update points to favourable ARPU trends for Chorus. It continues to grow the share of customers on the higher priced 1Gbps and Hyperfibre plans. Growth in the ‘Home Starter’ service suggests it is serving its role in bringing at least some price-conscious customers onto fibre, while providing a competitive alternative to fixed wireless.
Average broadband usage also grew this quarter. If this is sustained, it is another favourable tailwind for Chorus both for ARPU, and defending against wireless churn.
Lastly, CPI linked price rises will lift the ARPU of most fibre customers by up to 6.65%. Across the Tasman, nbn’s management must be at least a little envious of this move, especially as nbn goes through yet another iteration of its proposed wholesale pricing for the Special Access Undertaking.
[1] Totals exclude ~2,000 broadband connections Chorus is partly subsidising for student households.
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