The Chorus Ltd (ASX: CNU) share price is in focus this morning after a pre-market announcement from the company. Shares in the Kiwi telecommunications infrastructure group will be on watch after the price-sensitive update on its Initial Asset Value (IAV) model.
Why is the Chorus share price on watch?
Chorus will today submit its "comprehensive" Initial Asset Value model to the Commerce Commission. This is all part of the New Zealand agency's price-quality process for new regulation. Chorus will be subject to the new regulations as a key New Zealand fibre service provider.
It will be interesting to see how the Chorus share price performs following today's update and presentation. Chorus has forecast a starting Regulated Asset Base (RAB) of $5.5 billion.
That $5.5 billion would be as at 1 January 2022 comprising $4.0 billion in base RAB + $1.5 billion in financial loss assets.
Draft decisions are due in Q2 2021 with final decisions including final price-quality and Chorus expenditure by Q3 to Q4 2021. Post-final implementation of the regulatory framework is targeted for 2022 including determination of the financial loss asset.
The financial loss asset captures the unrecovered returns of Chorus and other fibre service providers. This will help to compensate providers for lost revenue in the initial ramp-up phase of ultra-fast broadband (UFB) networks.
Similar to the National Broadband Network (NBN) rollout here, there is forecast to be a supply-demand mismatch in the initial phases as the network is established but not yet widely sought or used.
Shares in the Kiwi telco services group were down 5.5% in 2021 to $6.87 per share at yesterday's close. However, on a 5-year basis, the Chorus share price has surged 88.7% higher to a $3.1 billion market capitalisation.
Foolish takeaway
The Chorus share price is one to watch in early trade after the company's latest update. That includes a new estimate for the all-important financial loss asset as the Kiwi regulators consider their next move.
