Good morning, everyone. Thank you for standing by and welcome to the Chorus Regulatory Update Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. You may register a question by pressing zero followed by one on your telephone keypad at any time. I must advise that this conference is being recorded today, Friday the 25th of March 2021. I would now like to hand the conference over to your speaker today, Mr. David Collins, Chief Financial Officer. Thank you, and please go ahead. Thank you, James. Good morning, listeners. Thanks for joining us this morning. I've also got Brett Jackson with me here in Wellington. My intention this morning is to step through the slide deck that we've released to the exchange this morning. We'll take some questions and answers at the end of the call. Starting on slide three. We have this morning, or we will today, submit to the Commerce Commission an IAV model or initial asset value model, which supports a RAB or initial asset value of NZD 5.5 billion. The IAV model is compliant with the Commerce Commission's input methodologies requirements. We've audited it for accuracy and compliance. It's been certified by the executive within the company and approved by the Chorus board. As we've done previously, we've used Analysys Mason, based in the U.K., to support us in building and developing the model. We believe that our submission should enable the Commerce Commission to move reasonably quickly through its price-quality determination process, noting the tight timelines that we face in the coming year. We will also be submitting some alternative cost allocation approaches, which we believe reflect the full cost of Chorus's standalone participation in the fibre PPP, which support a range up to NZD 6 billion. I'll come back to that in a moment to give a little bit more color. In terms of Maximum Allowable Revenue or MAR, the model at NZD 5.5 billion supports an estimated MAR range of NZD 715 million to NZD 755 million per annum over the RP1 period. To be specific, when I say a range, I mean that 715 is the 2022 estimate and 755 is the 2024 estimate. We come back to that in the chart a little later in the deck. A MAR at this range supports or is consistent with our existing business plans and our forecast fiber revenues for RP1, but it does leave very little room for any unintended consequences. We believe that perverse incentives for Chorus and also poor outcomes for consumers would arise if we were capped by our revenue caps from pursuing our natural expected rate of growth. It's important to note that this MAR estimate is based on an estimated or current risk-free rate, and that will be finalized at the three months ending the 1st of June. We will also be providing a MAR model to the commission later in April, which we expect will support the range that I've just quoted. In terms of the expenditure submission that was lodged in December, as we noted at the time, we do need to update that submission to reflect the final allocation methodology within the IAV model. We are also planning, and will do that today as part of this submission to the Commerce Commission. The adoption of the updated allocations has resulted in a reduction in the operating expenditure over the three-year RP1 period from NZD 625 million to NZD 550 million nominal. There are non-material changes to the CapEx submission. To be clear, the updated OpEx numbers I've just quoted are reflected in the MAR estimated range that I mentioned a few minutes ago. To come back to the alternative cost allocation approaches to the IAV that I mentioned before, and to give a little color to what I'm talking about or what we're referring to here. The key impacted area is in corporate OpEx, and in particular, the impact on the level of the financial loss asset, which we'll be talking about a little bit later on. From our perspective, Chorus was established as a PPP to build a fiber network. As a result of that, a number of corporate functions were created and therefore duplicated from Spark for this purpose. Some examples would include a board cost, an investor relations cost, a treasury function cost, a CFO cost, all of those corporate functions or cost centers. Our view is therefore that these costs should be directly allocated to fiber and not treated as a shared cost. This is a so-called standalone cost approach to cost allocation. Unfortunately, at the moment, such an approach is technically not compliant with the input methodologies due to the way that the rules have been written. We are required to submit a certified compliant model, and that's why we've submitted a model at NZD 5.5 billion. However, we will be engaging with the Commission around the alternative approach to cost allocations to more of a standalone approach, as we believe this should be considered as it reflects the full costs of structural separation required by the PPT. Moving on to slide four, a view of the Initial Asset Value. Two components to it. Base RAB at NZD 4 billion, which is comprised of UFB assets and shared assets. A financial loss asset of NZD 1.5 billion, giving a total of NZD 5.5 billion. The gray shaded area at the top reflects the allocation alternatives that I've just spoken to. Financial loss asset itself, as required under the input methodologies, has been calculated using a discounted cash flow methodology and a reminder that the depreciation of the loss asset going forward into RP1, that depreciation will be based on a weighted average remaining life of UFB assets immediately before implementation date. The base RAB itself, as a reminder, it excludes assets funded through capital contributions. The main examples of that are greenfield expenditure, roadworks, and installation charges. It also excludes assets funded by government grants. The main one there is the Rural Broadband Initiative, or RBI. We also have a current one, which is the West Coast Fiber Build. As we'll get to over the page, it also excludes approximately NZD 1.3 billion of copper or shared assets, and excludes non-Chorus UFB zone fibre assets. That is LFC area fibre assets, which total to NZD 1.3 billion. Moving on to slide five. We're showing here a dissection of the balance sheet by category between the unallocated asset value and the proportion that's going into the price-quality RAB. Couple of key important points to note here. The unallocated asset values, we have rounded these for ease and simplicity. They do represent the written-down values per Chorus's statutory accounts at 30 June 2020, plus a forecast of CapEx for the 18 months to 31 December 2021, and then less forecast depreciation for those 18 months. As we've talked about previously, depreciation under the Input Methodologies follows accounting asset lives. In terms of the price quality fiber RAB column itself, a reminder, again, these are net book values, and they are stated as at the 31st of December 2021, or alternatively, 1st of January 2022. These are the allocations to the price quality RAB, and that price quality RAB is the basis for calculating or setting the Maximum Allowable Revenue. Looking at the third column, the proportion allocated to the fiber RAB. As a reminder of how cost allocations work, when we have an item of expenditure, the first question is whether it can be directly allocated to fiber. If the answer is yes, as an example, the UFB communal spend, then 100% of that asset or that spend is directly allocated to fiber. If the answer is no, it's shared, then there is a shared cost allocation to determine the proportion that goes into the price-quality RAB. Couple of call-outs. In terms of fibre cable, the reason that all fibre cable does not get into the price-quality RAB is firstly, or the main reason actually is fibre in LFC areas is not covered under price-quality regulation. The other main component on the slide is ducts, manholes, and poles. The component that's excluded, which is about 14%, relates mostly to copper assets across New Zealand, but also to the shared asset allocation to excluded fibre assets. The assets within LFC areas that I mentioned a little bit earlier on. As I mentioned on the previous slide, the price quality RAB also excludes about NZD 300 million of fibre assets that are funded either by capital contributions or by a government funding arrangement. Moving on to slide six. We thought it would be useful to give a summarized view of how the financial loss asset calculation works. There's been a lot of discussion on this over the last year or two, so we're trying to give a simplistic view of what is a very complicated calculation process. We have followed the Commerce Commission template, and this analysis has been prepared by Analysys Mason as our support contractor. It's also consistent with the input methodologies. Call out a couple of the details on the page. The post-tax WACC for each of the years across the loss asset. That is an annual calculation, and it's based on the details that are described on slide number 10. You can see the decline in the WACC over the period, broadly reflecting the reduction in risk-free rates. The UFB asset closing value, which is the second line, that represents the build-up of the UFB asset over the loss period. As asset or as CapEx is spent on the UFB, that is included. As shared assets are utilized for FFLAS services, that is included in the asset, and you see the UFB balance build up over the 10 years. Important to call out that when you look at the total at 2022, and to be clear, that means that the 1st of January 2022, the closing UFB asset for the purposes of the financial loss calculation is NZD 3.8 billion. The reason that is less than the RAB for MAR purposes is that the financial loss calculation only includes contracted UFB spend. It therefore excludes any spend on fibre in RONZ areas and excludes any non-contracted fibre spend in UFB areas. An example of that might be infill type expenditure that's outside the contracted footprint, but still within UFB areas. Looking at the calculation of the financial loss itself, it is a discounted cash flow approach, as the Commission noted in November of last year with their final decision on input methodologies. What we've shown on the slide here are the cash inflows, which is the UFB revenue, and the cash outflows, which is CapEx, OpEx, and tax. One minus the other gives the present value of annual net cash flows. If you add up the PVs of annual net cash flows, you'll get to NZD 5.7 billion negative, which is the present value, or if you like, the future value at 1 January 2022 of the net cash flow on the UFB project. We've also shown just to help with modeling what the compounding factors are within each of those years. As a reminder, the cash flows each year are compounded up to the 1 January 2022. The dollar numbers shown on those two lines are present values as at 1 January 2022. Coming down to the bottom of the slide, the way the calculation works is you have the total cash outflow present value of NZD 5.7 billion, deduct the value of the RAB at that point. Again, as a reminder, that's contracted UFB spend only at NZD 3.8 billion. Deduct the present value of the Crown financing benefit, which is NZD 400 million. As a reminder on that calculation, that reflects the commission's treatment of avoided costs due to concessionary government funding for the UFB project. Another way of thinking about that is it effectively excludes a component of the assets that were funded by Crown funding when calculating the return on capital on those assets or the WACC on those assets. That's a summary of the financial loss. NZD 1.5 billion is what we will be submitting today as the financial loss asset. Moving on to slide seven. We thought it would be useful today to give a view of the implied MAR that relates to the submitted IAV today of NZD 5.5 billion. Summary is that the indicative MAR range is NZD 715 million-NZD 755 million. As I mentioned earlier in the call, 715 is actually the 2022 number, 755 is the 2024 number. Whilst we say a range, it's actually the beginning in 2022 until the final year in 2024. This is consistent with the existing board-approved business plan, which are the forecasts we're showing on the page, which are the blue boxes. The MAR reflects the current three-year risk-free rate in New Zealand, which is when we measured this about a week or two ago at 0.3%. The actual rate will be based on a three-month average ending 31st of May. A reminder that in RP1, the MAR is constrained by carry forward tax losses, meaning that the tax building block within RP1 is zero. Reiterates again that the MAR excludes capital contributions, greenfields in particular, and also any government grant income relating to Rural Broadband Initiative. It also excludes fibre revenue in LFC areas. I talked a lot on the call for our half year results a few weeks back on our views of why it's important, and we believe it's appropriate that the MAR in RP1 should be above our forecast revenues. It's important to note that as at the most recent results release, we are only 63% connected. We don't believe it's appropriate to constrain Chorus's natural expected rate of growth. We think it's critical that we retain incentives to continue investing in better consumer outcomes. We believe we have a great product to sell, and we believe that growing fibre uptake and growing newer products, faster speed products, are in the consumer's interests and lead to better consumer outcomes. Lastly, a stated government goal for this regime was to achieve a smooth transition for consumers and investors, and we believe a MAR above our forecast revenue is necessary to achieve that. I do note that we will be submitting a MAR model to the Commission in late April, which we expect will be consistent with the range we've quoted today, subject to risk-free rate movements in the market. The last thing I would call out on this slide is that the MAR range we're showing does not include any depreciation profiling or tilting. It is the raw MAR number that falls off the back of the Initial Asset Value at NZD 5.5 billion. Moving on to slide eight. As I mentioned earlier in the call, we have updated our OpEx expenditure submission, originally lodged in December. We've provided on the slide a view of the statutory P&L and an update of the proportion of the total statutory costs for each cost element that are included in FLAHS and a comparison to the view at December. The summary is that we estimate now that circa 47% of full year 2020 total OpEx will relate to FLAHS, and this is down from an estimate of 55% in December, which reflects the updated cost allocation assumptions. It's really important to note when we look at this slide, that that FLAHS proportion at 47% is expected to increase significantly as fiber uptake grows looking forward and as the copper network is retired. When you look at the slide, you can see labor is the key impacted area. The reason that's the key impacted area reflects back to my earlier discussion about a standalone approach to cost allocation, which is what we based our December expenditure submission on, versus a shared approach, which is what underpins the NZD 5.5 billion IAV model. To reiterate a comment I made earlier on, the updated OpEx building block numbers have been included in the quoted MAR range of NZD 715 million-NZD 755 million. Moving on to slide nine. This is an update of the OpEx regulatory template. The format is the same as you saw in December. The categories are different for regulatory purposes. In the December presentation, we provided definitions of what those categories are and also how they map to our statutory P&L. The headline here is that the OpEx, whilst the gross spend number is unchanged, the allocation to FFLAS OpEx has reduced from NZD 625 million to just under NZD 550 million. The main difference, as I noted previously, is around the treatment of OpEx labor, and the updated OpEx numbers have been reflected in the quoted MAR range within the pack. The remaining slides in the deck I won't go through in detail because they're grounds that we have covered in some detail previously. We have included, because it's very relevant, on slide 10, the key parameters coming from the input methodologies process, both for the loss asset on the left-hand side and then for RP1, first regulatory period. On slide 11, we've included the current regulatory timetable on the left-hand side and some detail on how the RAB roll forward works on the right-hand side of the slide. In terms of the reg timetable, the commission's published timeline has a draft decision in the first half of this calendar year and a final decision in the second half of this calendar year. That is therefore our expectation of the timeline looking forward. I will pause there, and thank you for joining with us. I'll now hand back to James, and we will go to questions and answers. Thank you. Thank you. Ladies and gentlemen, we will now begin the question and answer session. You may register a question by pressing zero followed by one on your telephone keypad and wait for your name to be announced. To cancel, please press zero, two. There may be a slight delay whilst participants register and names are collated. Our first question is from Arie Dekker. Ari, your line is open. Good morning. Thanks, David. I guess the first question was just around the comments you've made about your incentives with the MAR ending up where it is and that, kind of needing it to be above where your projected revenue is. In terms of your CapEx that you're forecasting and have put forward in this, that doesn't factor in any slowdown in your push to connect people onto fibre as you look to get it embedded, particularly against competitive threats in the future? Thanks, Arie. That's correct. Our CapEx submission and our OpEx submission is based on our board-approved business plan. Our business plan is based around achieving 1 million connections by 2022 and continuing to push better outcomes for consumers. There is no adjustment for any slowdown in spend in any of our internal forecasts or in any of our expenditure forecasts to the Commission. It just reinforces our view that we should be able to grow into our MAR and retain the incentive to improve consumer outcomes. As you've mentioned, you haven't applied any tilting in what you've submitted here. On the basis, and I know there's going to be more detail on the MAR coming in April, but in terms of what you've applied to come up with that indicative MAR that you've outlined today, the asset base, I guess, at the end of RP1, where does that sit versus 1 January 2022? Sure. Just to check that I understand, are you asking net of CapEx and depreciation over RP1? Correct. Yeah. the NZD 5.5 billion become at the end of RP1? Correct. Yeah. That's a good question. I'll give you a response off the cuff, and I might try and give you something in a little more detail. Over the RP1 period, our CapEx proposal is approximately NZD 1 billion for the three years. If you looked at what our depreciation is per annum, it's between NZD 350 and NZD 400 per year. At a broad level, those two will offset, but you have an indexation of the RAB that will occur each year, which is CPI. I think if you add all of that up, I'd expect it to be a little higher, at the end of RP1. I might just come back to you, Arie, and double-check that logic. The broad parameters are as I've described. No, that's helpful. Yeah. The depreciation and that indicative MAR is at around NZD 350-NZD 400 per year over that period. Well, I haven't given what the actual building blocks are, but depreciation within the regulatory model does reflect statutory depreciation. Yep. When you look at our stat accounts, you can see what our stat depreciation is. That is a good starting point. Then the thing to remember when you're estimating the depreciation building block in a reg context is there's a deflation that's deducted off that for CPI, given that the RAB itself is indexed. Yeah, sure. Okay, no, that's good. Just in terms of the revenue you're generating in non-Chorus UFB areas at the moment on that non-regulated fiber asset base. Can you just give a bit of context of how large they are and whether they're growing? Just broadly what the value of those fiber assets are or that asset base in the non-UFB areas? Yeah, I probably can't give that detail out at the moment, Arie. That's not something that we've published previously, and it's probably a little bit early in the process to give a specific on that at the moment. Sure. Just on, I guess, your cost base is around NZD 300 million currently. You've talked about that coming down I think sort of slowly over time. Clearly you've got a skinny and sort of shrinking revenue base on the non-regulated side. What can you do to better manage, I guess, costs down that you can't apportion to the regulated? Is there a risk of you being Because you've clearly got a very large asset base at book value on the non-regulated side. Are you seeing a risk that you're going to be going negative cash flow on that non-regulated side in the next few years on the obligations you have with regard to continuing to provide copper? Thanks, Arie. No, we don't expect to go negative cash flow in the next few years. A couple of points to note on our cost base. You're right, as I talk about that publicly, I've talked about consistent but gradual reduction in our total cost base. Accelerating through the three to five-year period. The biggest driver of our decreasing costs looking forward will be on the maintenance line, where most of it is reactive copper maintenance. Our job is to manage our fiber costs to within our regulatory allowance and then to ensure that our remaining copper business is optimized so that, A, it's profitable, and the key driver to that is that we manage our costs. That's our job, and I don't expect to be negative cash flow in copper. No, that was probably not put it quite the right way. If you look at that NZD 1.3 trillion of assets that aren't in the PQ, do you think that you can make a return on capital over the RP1 into RP2 on that book value? Yes, I do. A reminder that does also include fiber in our C areas. Yes. Yes, we do. Okay. Do I have any others? No, that's all. Thanks. Thank you. Thanks, Arie. Thank you. Our next question is from Phil Campbell. Phil, your line is open. Morning, everyone. Just a couple from me. David, in terms of the RAB, obviously split between the fibre RAB and the financial loss asset. Should we really not worry too much about the allocation because they're going to be amortized at the same rate? Or do you think they will be amortized going forward at different rates? Oh, okay. Sure. No, I wouldn't be too worried about a difference in amortization rates between the two there. The fibre RAB in total is based on statutory accounting asset lives. Whether it's the MAR RAB at four or the RAB to the purposes of the financial loss asset, the asset life rules are the same. I don't think you need to worry about the difference between the two of them in terms of asset lives or depreciation. Yeah. Awesome. The second one was just, I suppose in terms of the MAR estimates, that's NZD 715-NZD 755, which is consistent with the kind of fibre revenues approved in the business plan. Obviously, I'm not sure when the business plan was approved, but obviously in the meantime, we have seen some quite steep declines in wireless broadband prices. Now, obviously, I appreciate that they only catered a portion of the market, but does those lower wireless broadband prices, does it make difficult in the next few years to be actually able to increase the ARPU to CPI, do you think? We don't think that makes that challenging. We think when we look at our continuing growth in uptake levels, we've grown at 7% per annum for three years in a row now. We're due to provide our next quarterly update in early April. We don't expect the CPI increase on the 100 meg to have any noticeable impact at all. I would also note Sky's entrance into the market in recent days, pushing the one gig product, which we think is an enormous positive for us in that context. No, I don't think the CPI issue is significant for us. Okay. I'm not sure if it's in the pack. Just when you were doing the RAB estimate, do we know what the estimate of the shared assets was at the starting period? Yes, we do. There's a tiny little footnote at the bottom. That's slide six. Sorry, Phil. The starting UFB asset is circa NZD 30 million at 2012. A couple of notes on that, because we have had some questions on this. The reason that's low is at the commencement of the UFB build, the number of FFLAS services was zero, and then started to grow through year one in 2012 all the way up to 2022. The loss asset itself only relates to contracted UFB build. Therefore, at the start of the period, there is none of that, and then that starts to grow. Hence the pre-existing asset value is low at the start of the loss asset at NZD 30 million, the loss asset period, that grows to just over NZD 200 million by the end of the loss period. That's just a function of the proportion of those assets being used by UFB contracted services growing. Okay, awesome. Thanks for that. Thank you. Our next questions are from Ryan Tan. Ryan, your line is open. The next questions are from Ryan from Morningstar. Ryan, your line is open. Oh, hi. Sorry. I didn't know that was me. It's Ryan. Hey, David. My first question was there a regulatory template that you followed in allocating asset values to fiber? Was the allocation done by your own methodology, which itself needs to be reviewed by ComCom? I'm talking about the cost allocation. Sure, Ryan. Sure, no problem. The input methodologies outline what are acceptable cost allocation approaches, and what are not. What we've done with the help of Analysys Mason, and as you'd expect, we get a bunch of experts to assist with this, is that we've built our cost allocation approach based on what is allowable under the input methodologies. Therefore, reflecting or referencing my earlier discussion about a full standalone cost approach to labor OpEx over the financial loss period, we have not submitted that basis in our IAV value of NZD five and a half billion because it's technically not compliant with the IMs. We believe it is appropriate and a real reflection of the reality of what happened. Yes, the input methodologies define the way that cost allocations are required to work. That's what we followed. The Commission will review what we've done and make sure that we have done it appropriately because, of course, there's still a lot of judgment in that area. Okay. You mentioned that a firm called Analysys Mason helped you develop the models you're presenting today. Is it possible for you to tell us some of the other overseas companies it has helped with this type of work? Whether they have been mostly telcos, or have they done these type of thinpgs mostly for traditional utilities? Sure. What I can say is something general, Brian, on this one. They have helped international telcos previously, and they have done a lot of international work also. They have done work in Singapore, I can't be any more specific than that. They also did extensive work for us in the copper review process over 2014 and 2015. We refer to them as world-renowned experts in this area. That's not their marketing line. That's how we view them, and they do carry significant credibility, and they bring that to the table. Thank you, David. Once again, ladies and gentlemen, if you would like to ask a question, please press zero on your telephone and wait for your name to be announced. Our next questions come from Ian Martin. Ian, your line is open. Oh, thanks. Just a couple of questions, if I could. Sure potential perverse incentives of having too tight a MAR on the regulated fibre revenue. I just wonder how material the opportunity is beyond that. Obviously, you've still got a big chunk of other revenue, which is mostly copper. How much of it is fibre revenue outside of the regulated base? Is there potential to grow that? If you get disincentives in the regulated area, are there incentives to expand it, in LFC areas? I think JB's talked about potential new services. That's my first question. The second question is- Yeah You would've seen Ofcom make announcements about the regulatory arrangements to apply in the U.K. I just wondered if you can perhaps. Yeah highlight some of the differences in the incentive arrangements in the U.K. versus those that apply in New Zealand. Sure, okay. That's fine, Ian. Thank you for the question. In terms of non-reg revenue, we absolutely have the incentive to develop streams of non-regulatory revenue. The way our business plan is structured at the moment is we view our first task as getting uptake levels up to the appropriate level, and we've defined that as 1 million connections by 2022 and then growing further past that, whilst we haven't been specific on an uptake level. That's our priority. Also in our business plan, we do contemplate non-regulatory streams of revenue, but they are, at the moment, not a material part of our business. In the longer term, we want to grow them into a more significant part of our business, and we've talked about some of the examples that we are pursuing. Your point's very valid. If we're capped on the regulatory side by MAR, then our incentive to look at non-regulatory sources of income grows significantly. Yes, that would be one of our reactions if we were constrained, was, well, what else can we do to deliver value for our shareholders? That's on the non-reg revenue. In terms of Ofcom, yes, we noted it in the announcement that they have allowed a WACC of circa 6% in their recent decision. Within that, there's an asset beta of 0.62. They take the view that assets are long-term, so they match the risk-free rate term to a longer period of time. You contrast that with what happens in the New Zealand market, the risk-free rate is a spot rate that's set over a short period of time, and we're in that time now, three months up to the 1st of June. It's based on a three-year government bond, which you've got to interpolate between the two and the five-year. It's a short-term view, which is unhelpful. Then we look at the components of the WACC itself. The asset beta is 0.5 under the input methodologies. I compare that to 0.62 in the U.K. We do have differences of view with the Commission over some of the outcomes from the input methodologies process. The key one is ultimately the WACC, and you've just got to look across at what Ofcom have just done for a fiber asset in the U.K. I think that's a really good example or comparison point. Thanks, Todd. Once again, ladies and gentlemen, if you would like to ask a question, please press zero one on your telephone and wait for your name to be announced. Our next questions are from Lance Reynolds. Lance, your line is open. Good day, guys. Thanks for the call. Sort of question on the non-reg side. Just in terms of obviously the OpEx outflow and start deducing things from consensus group, EBITDA forecast. Just one comment. On that non-regulatory side, does that furthermore make kind of operating EBITDA, speaking on a pre-IFRS basis, does it make operating EBITDA excluding copper access? I'm just trying to get a feel for how much of that earnings is not consensus copper access going away. On my numbers, it doesn't look like that number's a big number. Sure. Yeah, there's not much in that bucket, Lance. We'd like that bucket to grow in the future. It's not a significant portion of our earnings at the moment. I think referencing my earlier comments, the priority in the next few years is to get the core asset uptake levels high. We might start to change that priority if we are capped within the MAR itself. There shouldn't be, to try to be specific for you, there shouldn't be differences in our or material differences in our EBITDA margins on those products. It is a very small part of the bucket at the moment. It's probably a longer-term thing for us to contemplate. Would it be unfair to say that the non-regulatory business doesn't make EBITDA ex copper access? Would that be a fair representation to make? Can I just try to understand a bit better, Lance, when you say ex copper access, what do you mean? Well, just ex the copper access business part of the non-regulatory business. Oh, yes. Okay. Yep. Would it be fair to say- Oh, yes. Okay. Yes. No, there's no reason to think the margins would be different in that part of the business. Yes. Yes Again, it's a small number. It's not a material number. Just on that, on your fibre cable assets, which is being toggled, so just breaking down the asset base. That NZD 300 million of copper cable, copper price has gone well for you. Is there an economic extraction value or there's extraction value and trying to export it down to nullify it? Is there genuine- Yeah Potential value on that? Yeah, good question. The copper price is interesting. We've done a little bit of extraction in the past. The challenge is that the cost varies depending on where the copper is and how long it's been in the ground. Overall, when we've looked at this, and I probably haven't looked at this really recently, but it is marginal for us. The cost to rip it up and get it to market, there's not a lot in it. As you say, if the copper price continues to go up, that might change, but it's not as easy to do as we would like it to be. There's not a lot of it going on at the moment. My final question is on the non-regulated fiber cables out there, surface NZD 200 million, which is in the LFC zone. How much of those fiber assets are contestable, so they're adjudicator assets? Or how much of their value is actually monopoly assets versus competitive assets? Right. Okay. Generally, the way we get fibre into LFC areas is in greenfield-type developments or small patches that we're able to service, and we have to win that piece of work over the LFC. It's contestable to the point that there's another provider in the market. When we win the job, then we've got the fibre in that area. I hope, if that helps, I hope, but that's how it works in the LFC area. Yeah. You haven't seen intuitively you've got assets in the ground, but then you see another fiber asset come next year? Is it pretty rational? It's pretty rational. We have a little bit of point to point in CBD, in the LFC areas, but no, it's reasonably rational, Lance. Okay, cool. Thank you very much. That's really clear. Cheers. Okay. Thanks, Lance. Our next question is from the line of Phil Campbell. Phil, your line is open. Yeah, David, just a couple of kind of clarification ones. I was just wondering if you could just go through a little bit more detail on the alternative kind of allocation method. Just give us a little bit more detail on that. The other one was just, I know you did explain it, but just wanted to understand the difference between the UFB closing asset value of NZD 3.8 billion and obviously the NZD 4 billion that's in the RAB calculations. I want to understand the difference on that again. Yep. That's absolutely fine, Phil. If we start with the cost allocation approach, and the easiest way to talk through this is to give a specific example. Let's run with CFO cost. Let's run with myself and my function. When you look over the financial loss asset period, 2012 to 2022, and to be specific, when we talk about an alternative cost allocation approach, what it impacts is the financial loss asset. The base RAB is not impacted. It's the financial loss asset that grows significantly with an alternative cost allocation approach. If you use the example of a CFO cost, our view is when Chorus was established in 2012, we were established for the purpose of building a fibre network. That's our reason for being. As a result of that, the CFO function, along with a number of other functions, were created and therefore duplicated for that purpose. Duplicated because they existed in Spark as it was at the time. Our view, therefore, is that those costs should be directly allocated to fibre. They are a stand-alone fibre business cost established for the purpose of building a fibre network. Our view is, therefore, it's not appropriate to treat those costs as a shared cost. The interesting thing is that the reason it's such a material number is you might think, "Well, how could corporate OpEx add up to another NZD 500 million of value in the financial loss asset?" The reason is because the cost is there in 2012 and then compounds 10 times. Then the 2013 cost compounds 9x. It's quite a material impact. However, under the input methodologies, unfortunately, that standalone basis of approach is technically not compliant. The reason it's technically not compliant is basically the way the Commission's rules have been written within the input methodologies preclude us from taking that approach. We were required to submit a certified and compliant model. Therefore, we have not been able to follow that approach in our base IAV submission of NZD 5.5 billion. We will be engaging with the Commission around this view because we do believe it should be considered, and we do believe it reflects the full costs of structural separation required by the PPP back in 2012. That is an example with CFA costs that applies to board costs or treasury costs or a long list of corporate-type costs. Does that help, Phil, in terms of? That's a really good explanation, actually. I suppose I'd just go and look at the ComCom consultation report they did on 12th of February. It's only a one-sentence comment, but they do say that given the relative segments of Chorus's business in 2020 as Chorus reported, we query the allocation method. I suppose that's the only kind of feedback we've got from ComCom so far, but I suspect you will be engaging with them in more detail soon. Sure. Yes. We absolutely will. Phil, the second question was around the two RAB values. Slide six, where we've got a UFB asset as at the 1st of January 2022 for the purposes of the financial loss calc. That's NZD 3.8 billion, whereas the base RAB for the MAR calculation is NZD 4 billion, which is on the previous slide. The reason for the difference is the financial loss asset under the input methodologies only relates to the contracted UFB spend. Any fiber spends that we undertake that's not within the UFB contract, and the biggest example of that is fiber in RONZ. There are also examples within our UFB footprint. An example is infill, where we have, for economic reasons, agreed or decided to spend CapEx to lay fiber where that was not in the UFB contract. It's just a function of the way the input methodologies are written, that the financial loss asset only relates to UFB contracted spend, not total fiber spend. Okay. Yeah, that makes more sense now. Yeah. That's why you've used the NZD 4 billion in the RAB calculation. Yeah, the NZD 4 billion is what drives the MAR. For the financial loss asset calc, there's a component that's excluded. Okay, great. Thanks. Thank you. Our next question is from Ian Martin. Ian, your line is open. Thanks. Just a question, clarification around slide five, which looks at the balance sheet composition, particularly of the base asset value, NZD 5.3 billion unallocated, NZD 4 billion allocated. You talked around the copper issues in a previous question. There's quite a big difference in the allocated and unallocated value for ducts, manholes, poles, and property. Yeah. Is it fair to assume that once you get through this first regulatory period, those percentages are going to go up because basically, you have the same asset base, roughly, given what you said about CapEx and depreciation? Yes, it is. The percentages will be higher. Is there opportunity to rationalize, for instance, some of the property once you've divested copper? Yep. Yes to both. In terms of the percentages, the copper business will continue to decline till it reaches a certain point where it will be stable. As you look forward, that proportion that goes to copper will broadly reduce. That's correct. In terms of the property footprint, the reason that percentage is so low is because copper takes up more space, to be simple about it. There are a lot more older copper assets, property assets that we have, and we absolutely have an opportunity to consolidate and rationalize, and we have a plan that we're pursuing to do that. Again, as you look forward to future regulatory periods, that percentage that is allocated to the RAB should be higher. All right. Thanks for that. We have a follow-up question from Lance Reynolds. Lance, your line is open. I've got two questions. On that property value. Sorry, Lance, we're struggling to hear you. Would you mind just coming a bit closer to the mic? Yep. You got me now? Yep. Thank you. Yep. On the non-regulated property value of NZD 200 million, is the bulk of those assets standalone assets, or are they actually shared and being split within a wider group? I would suggest most of them are shared. There will be some that are purely copper, but the bigger ones will be shared. On that math. If copper bleeds down and goes like copper was zero tomorrow, you wouldn't be able to realize NZD 200 million of value. Yeah. Everything. Yeah. It's not linear. That's correct. It's not linear. That's correct. I should also have called out there's LFC copper assets will be in there as well, which I should have called out. One more- You're right, Lance, it's not linear. Yep. Just one more question. Trying to get this right, if the non-copper access EBITDA of the non-regulatory business doesn't make much earnings, and you've got a NZD 500 million delta on your arguments around what corporate costs are, which I kind of buy into, wouldn't it be value-adding just to actually sell that business? The reality of your corporate function is your corporate function, so there'll be no argument at all by the regulator. And- You can invest in a non-regulatory business. Sure, Lance. Just to be clear, the value add for selling the business, do you mean the non-reg business or the copper business? Yeah. Just get rid of the Well, it's up to you, but if you got rid of the entire non-regulatory business, the argument on splitting your corporate costs would be a moot point. Suddenly you have a NZD 500 million+ in your hand. Well, I must admit, I haven't looked at it that way before, but I guess, yes, theoretically, that's something that we could consider. It's probably a little bit early for me to be running down that path, but I understand your point. Yeah, because it would make sense given that it doesn't really make much earnings anyway. Okay. That's cool. Thanks. All right, Lance. Thank you. We have no further questions at this time. I'd like to turn back to the presenters. Okay. Thanks, James. Well, thank you all for joining us. I know there's a lot of information in those few slides, and I'm sure there'll be more questions as time goes by. Brett and I are always available to chat. Thank you for joining us. We appreciate your support, and we'll be back in touch again soon. Bye for now. Ladies and gentlemen, that does conclude today's conference. Thank you for attending, and you may disconnect your lines.