Greetings and welcome to our half-year results announcements for the half-year 2024. I'm JB Rousselot, the CEO of Chorus, and with me is Mark Aue, our Chief Operating Officer. As usual, we'll cover the areas that are summarized on the slide, including key results, financials, guidance, and trends, and then we'll take questions from the phone at the end of our presentation. We're pleased to be presenting a very solid result today in what seems to be our first normal operating period for a long time. If you remember, this time a year ago we were in the middle of dealing with operational challenges that included extreme weather events and ongoing technician shortages in the wake of COVID. That isn't to say that things are very easy today.
Like other businesses, we're dealing with inflationary and broader macroeconomic challenges, but demand for broadband remains resilient and fiber uptakes continues to grow. In the six months, we grew total fiber connections by 31,000 to just over 1,060,000 connections. That fiber broadband growth held our overall broadband connections flat for the half, offsetting the copper broadband reductions that we continue to see outside of our fiber areas. And then copper voice disconnections reduced slightly, and total fixed lines connections were down 50,000 compared to a loss of 19,000 in the half-year 2023. So this meant that we ended up December with just over 1.25 million fixed line connections. On the financial side, revenue continued to grow and was up NZD 16 million from half-year 2023 to NZD 503 million.
Underlying EBITDA was NZD 349 million when you exclude one-off costs of NZD 2 million for changes to our operating model, and that's up NZD 7 million from the half-year 2023. Net profit after tax was NZD 5 million compared to NZD 9 million the previous year as a result of higher interest rates and accelerated depreciation on our copper assets. We have also confirmed an unimputed interim dividend of NZD 0.19 per share, in line with our guidance of NZD 0.475 per share for the full year. We've now built fibre past 1.49 million addresses, and that footprint grew by 16,000 addresses in the half. Again, 1.25 million of these addresses have a fibre socket already installed. Fibre uptake across this footprint grew by 1.2% in the half to reach 70.6%, and the uptake levels in our more recent UFB2 rollout areas showed even stronger growth, lifting from 51%-55% in the half.
In our UFB1 areas, uptake is at 74% and is still growing. Now, this slide is familiar for you. It's from our December quarterly update, and it shows that the broadband growth in our fiber areas is offsetting copper disconnections. We can withdraw copper where fiber is available, so our copper withdrawal program is helping drive some of that fiber broadband growth, but this contribution will reduce over time as the pool of remaining copper connections shrinks. Other important contributors to fiber growth are new homes in greenfield developments and encouraging consumers to activate fiber in homes where inactive fiber sockets exist. We added 11,000 net broadband connections in our fiber area, even with the headwind of student disconnections that we typically see around the summer holiday. Line loss in other fiber company areas, so the LFC, remains reasonably consistent, and we have about 25,000 copper connections remaining there.
In the non-fiber zone, the pace of disconnection slowed slightly in the half, and we just have over 100,000 copper connections remaining. Our Home Fibre Starter, the 50 Mbps plan, had very strong traction in the half. It doubled to 30,000 connections. We consciously held the pricing of that plan at NZD 35 given the cost of living crisis, and it is a useful tool in our copper migration toolkit. Consumers on 1 Gbps plans also grew, up from 24% of residential plan mix to 25%. And then multi-Gb Hyperfiber services: they don't show on the bar charts yet, but they now number almost 3,000 connections, and about 85% of that Hyperfiber demand is from residential customers. And then on the business side, business fiber connections grew by 4,000 in the half, and three-quarters of those business connections are on speed of 500 Mbps or above.
Speaking of data consumption, the proportion of power users consuming more than 1 Tb of data was 16% in December, and the average monthly data usage on fiber was 599 GB per month. That's back near the record usage levels that we last saw during the COVID lockdowns in late 2021, and it shows that there is ongoing growth in everyday data usage. That growth is happening despite lower data users joining from copper. Based on overseas market comparison, we continue to forecast ongoing data growth, and as we've noted before, we anticipate that a step up in usage will occur as consumer video consumptions continues to evolve. For example, average user would double if all the current streaming traffic was on 4K quality. Now, the average doesn't tell you the full story.
More and more usage is happening in the evening peak times, so this means that the network capacity is having to flex a lot more. If you look at the chart on the right, you can see how an average evening, the red line, peaks around 3.8 Tbps of download. But that is completely eclipsed on evenings when events like Fortnite upgrades drive record peaks, and for this example, it was 5.3 Tbps. The peak in December 2023 was 35% higher than the peak in December 2022. Now, the good news is fiber can handle those spikes far better than other technologies, but we do need to keep investing in capacity to keep ahead of that growth in demand. So I'm now going to hand over to Mark for more detail on what was behind our steady financials, and I'll be back on trends.
Thanks, JB. Morning, everyone. If we turn to the earnings statement first, and JB's kind of covered these at a headline, but the thematic I'd really say for the first half is one of a steady set of results with no material operating surprises, which is pleasing. That's underpinned by continued growth in revenue, ongoing cost containment, and that's delivered further gains in EBITDA. In revenue, we're lifted by NZD 16.5 million, with EBITDA up NZD 5 million compared to HY 2023. Operating expenses were up NZD 11 million compared to a year ago, or NZD 9 million on an underlying basis when we do exclude the operating model change costs. We had about NZD 2 million booked in this half. As we'd noted in prior periods, our push to migrate customers from copper to fiber means that we have accelerated depreciation on copper cables in our fiber areas.
We've adopted the same approach for copper-related ducts in our local fiber company areas, and we did that from the start of this financial year, and that's really driven the NZD 6 million lift in D&A compared to half-year 2023. Those ducts will be fully depreciated by June 2026 in line with our broader copper withdrawal program. For transparency, net interest expense was up NZD 16 million compared to half-year 2023 when we exclude the NZD 11 million of early refinancing costs of the euro bond that we did and incurred that in the prior period. Total debt has increased by roughly NZD 150 million, and interest rate increases have seen our weighted average effective interest rate on debt increase marginally from 5.4% to 5.8% in the half. As a result, that combination of higher D&A and net interest expense has reduced net earnings from NZD 9 million to NZD 5 million over the half.
If we look at revenue, reported total revenues of NZD 503 million reflect that ongoing growth in fiber broadband as fiber uptake is increasing. Although total broadband connections across fiber and copper were flat between the half-year periods, fiber broadband revenues were actually up NZD 39 million, with copper broadband revenues reducing by NZD 17 million. CPI increases had a staggered effect through the half. There was an average 6% increase across some fiber broadband services in October and 5.65% for some copper broadband services from mid-December. Fiber ARPU has grown from NZD 53.38 to NZD 56.05, and that's also noting that we've continued to see growth in our higher-speed plans. However, copper voiced revenues are continuing to decline at a consistent rate.
Field services revenue were down NZD 3 million, and that's largely driven by greenfields revenue that reduced by NZD 6 million on the year as new property development has eased off, and that's due to that broader market conditions and rising building industry costs that we've all seen. And then finally, we saw a NZD 2 million benefit in other revenue, and that's related to our property optimisation program where we've exited some of those assets. If we look to expenses, operating expenses were up NZD 11 million from half-year 2023, but on an underlying basis, we're actually flat sequentially to H2. Of those key movements, labour costs were NZD 39 million. That included that NZD 2 million of changes related to the new operating model, and that came into effect from the 1st of February.
Now, as reference, about 130 roles across the business were impacted or changed, with about 30 roles actually being disestablished, and that's as we realign the business around the new value streams and the new operating model. I can confirm that there won't be further change-related costs in the second half of this year. From an overall FTE perspective, we continue to look at opportunities where they are available in third-party supply and also contractor insourcing that bring cost efficiencies in. That might mean that FTEs can go up, but actually our costs overall would be coming down. Network maintenance costs were down NZD 1 million and continue to trend down as customers do migrate to fiber.
As we've noted previously, the inflation uplifts that were applied to our service company contracts, they came into effect from April last year, and the resulting step up in costs, though, has largely been offset by reduced fault volumes. IT costs were largely flat, noting again last year we had the benefit of a NZD 2 million software provision release. Other network costs, though, increased NZD 3 million, and that's due to ongoing property and network optimization as we decommission and exit copper and other legacy assets. And then rents, rates, and property equally impacted by inflation, but also a catch-up of some deferred property maintenance activity that we've spoken to previously. And then finally, in other spend, we increased by NZD 3 million. That includes a portion of uplift and advertising and other costs to support ongoing sustainability and our regulatory work.
From an underlying perspective, whilst the one-offs were pretty immaterial in the first half of this year, they were substantially greater in the prior period, so we've included this slide for comparative purposes. As JB noted, the underlying EBITDA actually did increase NZD 7 million to NZD 349 million this year compared to the half and prior year, and that continues a modest growth of around 2%. Total expenses in the half were NZD 154 million when excluding those operating change-out costs. That results flat sequentially, as I said, but up NZD 9 million, and that's driven by, again, the inflationary impacts and the projects that we've talked to that we had underway. To gross CapEx, NZD 232 million in the half is up NZD 10 million from the prior year. That included NZD 2 million of Cyclone Gabrielle recovery spend, and again, to confirm, we don't anticipate further cyclone-related costs in the second half.
Fibre installations and Layer 2 expenditure at NZD 108 million, with 49,000 installations completed. Average cost per install was about NZD 1,100, which was at the bottom end of the guidance range that we'd provided. Within that, Layer 2 spend was up NZD 13 million to NZD 36 million as we replace end-of-life equipment that really supports network traffic and it provides for future capacity. Now, I would note, too, these projects are front-end loaded in the first half based on both lead time for delivery and also cost efficiencies that we gain, so Layer 2 spend will be materially lower in the second half. Other fibre and growth CapEx was down NZD 12 million. Now, that's largely because of the slowdown in new property development CapEx from NZD 38 million to NZD 31 million.
Network sustained CapEx, though, up NZD 8 million, and that's driven, again, by a combination of increased roadworks activity that we do generate revenue for and ongoing life cycle programs to replace legacy fiber routes. Then finally, in customer acquisition costs, they were up NZD 5 million. That's largely due to a change in mix with a higher proportion of off-net connections coming onto the network and higher plan upgrade costs. To copper and common CapEx, copper spend of NZD 12 million for the half, that includes NZD 2 million for rural cabinet upgrades, which are largely grant-funded, and also another NZD 1 million of those cyclone-related costs. Underlying, if you think, NZD 9 million spent on copper, and that continues to trend down in line with the copper withdrawal program.
In common CapEx, it's up NZD 6 million from prior year, and that's due to the ongoing work on exchange buildings and particularly earthquake strengthening that was previously delayed by the pandemic effects. We do have growth in new investment for our EdgeCentre colocation capacity and products. To guidance and dividend, our EBITDA guidance range of NZD 680 million-NZD 700 million is unchanged, and we are tracking to the upper half of that range. There's no change to our CapEx guidance range at a total level of NZD 400 million-NZD 440 million, but again, we are tracking to the upper half of that range. In the subcategories for fiber, copper, and common CapEx, also unchanged.
Then finally, I'd note, from a sustaining perspective, we invested NZD 116 million in the first half, and our guidance for the full year of between NZD 220 million and NZD 240 million for sustaining is unchanged. That split of CapEx is in the appendix pages for reference. From a dividend perspective, we've announced an unimputed interim dividend of NZD 0.19 to be paid in April, and the DRP will remain suspended. The full year 2024 guidance of NZD 0.475 per share also remains unchanged. As a reminder that we've completed now our NZD 150 million share buyback in the first half, we now have just under 434 million shares on issue, with about 19 million shares that were cancelled through the buyback. Now, with the conclusion of our share buyback and our imminent entry into a new four-year regulatory period, we're undertaking a capital management review.
Now, I'd say this review isn't an overhaul of our current framework at all, but more like a warrant of fitness. That's really to consider how it's operating in practice and to ensure that it's fit for purpose across at least the next regulatory period, and it's the same approach we took heading into RP1. Now, as we've said in the past, Chorus is committed to growing shareholder value and delivering a sustainable and growing dividend through time, and that hasn't changed at all. We expect to provide an update on the review at the full-year results later in the year, and we'll be considering, as you would expect, factors such as the next regulatory settings, shareholder feedback, comparable company benchmarks, and broader macroeconomic factors.
Regarding gearing, our net debt to EBITDA has grown to 4.56x , up from 4.39x in June, with borrowings increasing by about NZD 150 million. We had NZD 750 million of fixed interest rate swaps that started in the half-year of 2024, and that's lifted the fixed component of our interest rate exposure from 65% that we were at the end of the financial to now 70% fixed for the next three years. The various rates for our debt profile are detailed in the table on the slide. Regarding crown financing and debt profile, no material movements here. What you will see on the slide is all of our debt profile and the tenor, and I would just note our recent Australian dollar bond on the chart now for 2030, and that replaced the October 2023 euro bond.
Our next refinancing activity isn't now until mid-2025 when the first tranche of the crown financing of NZD 170 million comes due. To regulatory, we are about to step into that next four-year regulatory period. That commences in January of next year, of 2025. We lodged our expenditure proposal for that period back in November last year, and we updated that proposal three weeks ago. We have confirmed we will be proceeding with fiber deployment and expansion to another 10,000 premises at a rollout cost of about NZD 40 million, and we did remove approximately NZD 200 million of discretionary investment from that submission that would have been needed to take fiber past another 30,000 premises. As a result, our total CapEx proposal for the next regulatory period's now approximately NZD 1.3 billion nominal, down from about the 1.5 that we'd initially submitted.
The commission's draft decision on our OpEx and CapEx proposal is still expected in the first quarter of this calendar year, with a final decision due in the second quarter. We also expect the draft maximum allowable revenue, or the MAR decision, toward the end of Q2, but still expect the final MAR decision towards the end of the year in Q4. We would note, too, the risk-free rate for the next regulatory period, WACC, is due to be calculated shortly. The commission released a WACC for information disclosure purposes, and that indicates a materially higher WACC than in the first regulatory period, as you'll see on the table, but again, I don't think that would be a surprise. So overall, look, a steady set of results with no operating surprises, and we look forward to that ongoing momentum in the next half. Back to you, JB. Thank you.
Okay.
Thank you, Mark. Now, we've talked before about becoming a simpler fiber-only digital infrastructure company, and this calendar year, we'll see some substantial steps towards that goal. The legacy complexity of copper is really starting to fall away from our business. When you look at the connection trends in the last 12 months, copper connections reduced by 94,000, and fiber grew from 78% to 85% of our connections. And that shift to fiber has already seen total fault volumes fall by 15% between half-year 2023 and half-year 2024. We expect to retire copper in our urban fiber areas by the end of 2026, and more copper savings will follow as we then optimize the associated network and property assets. We're also continuing to improve our fiber business. For example, we've seen our simplified business service stack deliver some good customer growth in the business segment.
Another area that we've been working with retailers is on improving customer experience or customer satisfaction for activation of existing fiber connections. So these intacts, as we call them, make up about 75% of our fiber activations. But our efforts are starting to deliver some results with customer experience scores lifting from 7.2 to 7.6 just in that half-year. From the beginning of February, we began operating under our new operating model. As Mark has mentioned, this business change has affected a large number of roles. The goal of that change was not exclusively cost reduction, but to reflect our evolution to being a network operator and to make us more effective in delivering our strategy.
It introduces new capabilities and more end-to-end focus in the three new value streams that we've created that are focused on access, infrastructure, and fiber frontier. Regulatory certainty is, of course, another significant focus in 2024, as Mark mentioned. We're just 10 months away from the start of a new four-year regulatory period, and we expect that the regulatory settings for this new period will better reflect our shift to a fiber-centric business and enable improved long-term planning. Now, to our strategic pillars, winning in our core fiber business remains our top priority, and we're focusing on how we push for 80% fiber uptake. Our active wholesaler strategy will keep evolving to help grow fiber connections. Our UFB2 areas and the existing base of inactive fiber sockets are natural growth areas that we'll keep targeting.
But we also know that the tailwinds that we're getting from copper withdrawal will ease over time as the customer pool shrinks. That's why we need to keep sharpening our marketing and our retailer incentives. For example, we're trying things like tailored migration approaches for specific customer groups, such as retirement villages, where we know that the customer requirements are different. We're pleased with the success of the Home Fibre Starter Plan. It was initially developed to fill a gap in the market for lower-cost fibre plans. Economic circumstances mean that it is now helping consumers affected by cost of living pressures to stay on fibre. While that means that we're seeing some trade-down from the 300 megabits plan, we're keeping those customers on net and on fibre. We're also seeing some retailers use the plan to target wireless consumers because it offers a better service.
The plan also fulfills a really important role in supporting our goal of migrating those low-data users from copper to fiber. At the other end of the speed spectrum, 1 Gb plans continue to capture a high share of growth, and we're seeing more retailers get behind our multi-gigabit Hyperfiber plans. We believe that consumers appreciate the value of fiber when considering its benefits compared with other technologies. Now, we have noted from online discussions, such as the one that's highlighted here on the slide, that there may be instances of a bit of overpromising from some wireless retailers regarding their network capabilities. Similar occurrences have been observed in the past, and we will continue to encourage the Commerce Commission to take steps that ensure consumers receive clear and fair information about our technology options that are available. As a wholesale-only business, our direct engagement with consumers is limited.
Maintaining a balanced and an equitable broadband market in New Zealand, where all network options are fairly presented, is essential. As I've said before, there is no such thing as fiber-like. You're either on fiber or you're not, and you will notice the difference if you're not. Ongoing new revenue, Mark has mentioned earlier, we've confirmed plans to extend fiber broadband to another 10,000 premises. These 10,000 premises include suburbs and communities that are just outside of our existing fiber footprint, or places like Milford Sound, where we just completed a government-funded backhaul link into the township. We've started the rollout in a few areas already, and we expect to complete the bulk of the rollout in FY 2025. About 60% of the premises in these areas are off-net.
This is a great win-back opportunity for us, given that a number of these customers will be on less reliable fixed wireless broadband. Already, we're receiving really strong pre-registration of interest from some of the initial communities in the rollout plan. Our other growth focus is to drive revenue from our existing assets, and to do that, Mike Shirley has joined us to lead our new infrastructure value stream. He has a strong telco industry background spanning retail mass market and business, wholesale, and infrastructure. Most recently, Mike led the Vector's fiber business in Auckland. He's passionate about the evolving industry structure supporting New Zealand's digital transformation, and he sees great opportunity for Chorus to help customers and industries as they digitalize their business.
As an example, we've just expanded our EdgeCentre capacity in Auckland by about 20 racks, and half of those have already been taken up. Mike's other areas of focus in that infrastructure value stream include new property development, which made fiber available to about another 15,000 lots in the half, and also our backhaul and our smart location products. And then optimizing our non-fiber assets, and specifically copper. The other benefit of our new 10,000 premise rollout is that it enables us to withdraw copper services in that footprint. As this chart shows, just 100,000 copper connections remain in areas where fiber isn't available, and that continues to trend down steadily. The shift from cracked copper is happening a lot faster in the fiber areas, where we're driving the migration for copper to fiber with about 47,000 copper retirement notices already issued to consumers to date.
We issued about 17,000 of these notices in the last six months, and more than 800 cabinets are now closed, and we've achieved an 82% broadband retention on those. Copper connections in our current fiber zone have now fallen below 70,000 lines and below 25,000 lines in other fiber company areas. Now, global developments have made it clear that copper is a sunset technology, and ultimately the legacy service obligations that we carry need to change to reflect this reality. Countries like Norway have already recognized that there are better options for consumers and have accepted other technologies. Closer to home, the Australian government has just launched a review to modernize their universal service obligations, and are testing both satellite and wireless services for voice delivery. We expect that their findings will help inform the next steps here in New Zealand.
A recent ministry briefing to the incoming Minister for Communications acknowledged that high-capacity fiber investments make socioeconomic sense. They noted that wireless rural networks face ongoing capacity issues as consumers' data demand continues to grow. The 10,000 premises that we're now building to represent commercially feasible areas for fiber network deployment under the current regulatory and policy settings. As Mark said, we'll continue to investigate ways that we can extend our fiber footprint further, but the NZD 200 million that we had identified to reach another 30,000 premises was always contingent on pricing, market, and regulatory settings. In the absence of clarity on those conditions, we chose to remove that investment from the regulatory proposal, now being reviewed by the Commerce Commission. Should material changes in those settings allow a clearer commercial return on our investment, we could look at reintroducing additional investment through an individual CapEx proposal.
So to recap, half-year 2024 was a solid six months for Chorus with no surprise. Fiber connections continued to grow, reflecting higher data demand and support by our broad range of plans and also effective incentive programs. We delivered EBITDA growth by growing revenues and by having good controls on cost in a high-inflation environment. The RP2 process is progressing well, and submission and determination milestones are on track. We've started work on an extension of Fiber to 10,000 more premises that are very close to our network and have many off-net customers. And we've started operating under a new operating model that reflects our future Fiber-only network operator profile. Finally, we did also announce a smooth transition to a new CEO with me stepping down in mid-April and Mark taking over as the new CEO.
It's been a privilege to lead this organization through significant milestones for the last four and a half years, and I know that I'm leaving it in an amazingly capable pair of hands with Mark. With that, let's now go to questions.
Hello, and on your end, wait for your question to be announced. If you wish to cancel your call, please press two. If you're on a speakerphone, please pick up and sit to ask your question. First question comes from Arie Dekker with Jarden. Please go ahead.
Good morning, and thank you for a very clear presentation. First question, just withdrawal of that circuit term. Any response from the government on one? I might be able to help you get more committed to power level.
Sorry, Ari, we had a lot of audio problems and cutting in and out, so we could not understand the question. Do you mind repeating it? Hopefully, we'll get through with that.
Yeah, sure. On the withdrawal of the NZD 200 million extension, has it drawn any response from government today on how they might make that more commercially palatable?
No, it's a bit early to do so. As you see, we mentioned the briefing to incoming minister, the BIM, that kind of highlighted that it does make socioeconomic sense. When you prepare those submissions, they take a long time, so you prepare them a long time ago. You put in there your best view of what the market, the regulatory, and the policy environment will be. You do so almost a year, a year and a half in advance, and things do change. We do have seen some changes in market dynamics, some changes in macroeconomics, and we have a new government in place. We had introduced in the plan a discretionary spend for increasing the fiber footprint. We know that having it as a discretionary element was complicating a bit the overall regulatory process.
In the meantime, we also finalised and contracted for the first 10,000 premises, and we were comfortable with the returns that we could do for them under the current regulatory market and policy settings. But as Mark said, the NZD 200 million was always conditional upon some better terms, so we've now withdrawn that. If we see significant changes in market, in policy, or regulatory setting, we could consider to bring them back. We will have an ongoing conversation with both MBIE, with the regulator, and with government to see how those can be changed.
Very political, as I said. If we look to price changes later in the year, does the success of having Home Starter provide an opportunity to increase the price point there, or is the intention to hold that through the regulatory period?
I think it's too early for us to signal any pricing decision. As you know, they come towards the later part of the year, so I'll reserve our answer to that. We're closely monitoring how the plans are competing in the market, and we'll make a decision when we get closer to that point in time. Overall, our revenue growth is driven by a mix of increased fibre connections. We added another 30,000 in the half. It's driven by a difference in speed mix. We still see growth in the 1-gig plan, and overall, we're still seeing in ARPU growth from 53 to just over NZD 56 in the half.
Thanks. Just on CapEx, just the only one question. Just on the Layer 2 spend, and you noted it's been materially low in the second half, just to put some context, can you sort of give us context of what you achieved with Layer 2 spend in FY 2024 and what the outlook might be for FY 2025, or what it'd be on to spend now in FY 2024?
Yeah, sure, Ari. Let me pick that up. So I think the first thing to note, as I said, it's front-loaded to the half, which is why I'd see a bit of an uplift more so than what you'd look to, perhaps. And that's due to timing and from a lead delivery perspective, but equally efficiencies that we can drive. So I'd expect that to moderate, as I said, materially over the second half. Some of it's Hyperfiber augmentation, and we've talked previously around the time it just takes to augment the network and build capacity. And then some of that is lifecycle work and an aggregation of equipment as we replace equipment in the network that is either aging or becomes unsupported over time.
So there's a program of work from a lifecycle perspective that runs across a couple of the CapEx lines that you'd expect to lift, as we'd said at the end of full-year results last year around lifting that guidance on sustaining to the 220-240 that was primarily driven by inflation, but it was also recognizing there was a lift in lifecycle replacement work.
Okay. Just last question from me. Just any update on whether you might be out with rating agencies on the refinancing of Crown loan and treatment of it? I mean, do you think specifically, do you think you'll be able to lead me to do a hybrid instrument, replace it, particularly given the small size of that first repayment?
Yeah, and that hasn't changed. Our intention is to look for a hybrid-type replacement on the CIP financing. It's something we're continuing to work through.
Okay. So your intention is actually to replace that with a hybrid replacement in 2025?
Yes. Yes. Yes.
Okay. Thank you.
Thanks, Ari.
Question comes from [audio distortion] . Please go ahead.
Thank you. You mentioned that which cost to fix a fault on your network is higher due to third-party providers. But over the term, is there anything structural with fibers that elevate that cost per unit?
Sorry about that.
I'm sorry that we're having real audio problems, unfortunately.
I'll try. So I think your question was around the cost of fixing faults having increased, and we did mention that some of that was driven by the fact that we do have inflation built in some of our circuit contractors. I think this is the bulk of the evolution that you're seeing in those. There is nothing structural in terms of the fiber faults that we're experiencing. It's just this flow-through of the inflation.
Yeah. Maybe if I just add to that. So the recognition on the service contracts and the changes that we'd had because previously we'd been managing any inflationary sort of lift. In April last year, there was a lift in the service contracts out because of that inflation and CPI uplift. So we only had one quarter on a like-for-like basis in the prior period, whereas we've now had a full period at the inflated rate. And the point I was making, though, is that if you look in the operating expenses on that network maintenance line, actually they've come down. So we're continuing to trend down on an operating cost basis. And so even though the rates and cost of faults have actually gone up per fault, the number of faults have come down overall.
So as we're continuing to migrate off copper and onto fiber, you'd expect that trend to continue.
Okay. Thanks. That's really clear. When you say aiming for net to either to not materially exceed 4.75, sorry for getting into the finer details of English, but does that mean 0.75 is your sustainable foot level, or is that your minimum tolerable level?
No, we have a 5x level. The 4.75 is actually an internal ceiling that we'd had, but we have the ability to go up to 5x.
Right. Okay. So 5 times circumstances without any problems in terms of internal fault?
Sorry. We're really having a hard time answering your questions. Really apologize about that. If you see us frowning, it's not that we're puzzled by the questions. It's just that we can't even hear them, so really sorry about that.
Apologies.
Yeah. I can assure you that I'm not on a fixed wire when it comes to 5G rollback.
Thank you.
Look, just leave it at that, JB. Just want to wish you the best in the future, and you have a lot of fun.
Thank you. Appreciate that. I will be doing the roadshow, so I'll have a chance to catch up with some of you guys.
Thank you.
Your next question comes from Aaron Ibbotson with Forsyth Barr. Please.
Hi there. Good morning, and hopefully, your audio improves. Mark, congratulations on your new role, and maybe good luck when you plan your contribution to NZ Inc. I've got a couple of questions if you can hear them. So first of all, I was just wondering if any of you would be willing to elaborate a little bit on sort of the OpEx and the cash cost take of the network, so basically withdrawal, not just next 6-12 months, but how do you see this balance between revenues and cash costs going down the copper side over the next few years? That's my first question. Thank you.
Yeah. So I'll have it first go, and then Mark might bring it. So if you think about the dynamics of what happens when you do copper withdrawal, you have an instant saving in maintenance OpEx because you reduce the number of truck rolls. So that's the first wave of cost reduction that you're seeing as we're driving this copper withdrawal program. After that, as we've said, we're starting to turn off cabinets. So those are more step changes once we've got all the services off on a cabinet. We've mentioned we've already turned off 800 of those, and that triggers a saving in terms of power consumption of that equipment. So that's the next wave. Once we're done all of the copper equipment in an exchange, we'll then be able to see a reduction in the power consumption that exists at that exchange.
That will be the last wave in terms of the bulk. So that will drive very focused in the fiber areas, in our own fiber areas. As we said, we want to be out of that by 2026, so we anticipate to be able to get all of those savings in that footprint by 2026. The local fiber areas where there is fiber will probably shortly follow, and then we'll be left with the non-fiber areas going forward.
If I can.
Well, you go.
Yeah. Aaron, I was just going to note, and we talked too, that so there is a truck roll. So there's a cost involved when we do decommission, but we've got that broader program out over accelerating our depreciation but withdrawing from those cabinets. And you see that step change in each of the results, I think. So when I just talked to OpEx earlier, even though we've had a lift in the service agreement contracts and pricing, actually, we've been able to offset that through lower fault volumes. Equally, the power cost, albeit there's some volatility that we're seeing in spot rates, but you'd expect those costs to come down immediately as well. In the CapEx side of things, we are seeing that underlying trend for copper. We're about NZD 9 million in copper CapEx for the half.
While the majority of common CapEx, you'd say, is fiber-related, there's actually a portion in there also that's copper that you would expect to come down and moderate over time too.
Okay. That's detail. I'll be more specific. So previously, you've talked a little bit on potential sales as exiting some of these cabinets. But in general, you must have some internal forecasts for the actual flow that comes out of your copper business. Is it a little negative when you look into 2024, 2025, 2026? That's my question, basically. And maybe also some disclosure if we're going to get some more granularity on this. Thank you.
Sorry. We're just having really difficult problems with the audio. I think what you're asked probably more is linked to profitability of copper over a longer run. Copper is still profitable.
Not profitability. Cash. Cash.
Actual cash. Yeah. Well, look, I mean, we've still got a customer base now on copper that we still generate revenue and margin from. We're migrating actively and withdrawing copper ourselves, so we will see that shift. But overall, you're going to see the cash improve because the CapEx is going to reduce as we do withdraw, and we've got less cost to actually maintain that network because there is literally just less of it. But we'll still have the stub for the rural side. What we talk to is that exit from UFB and LFC areas, but it's the rural New Zealand that, as we have discussed in the past, we think that the TSO construct is outdated, and we're seeing alternative technologies come in, and the uptake of that grows. So that's part of the conversations that we're continuing to have with government.
Our forecasts are positive and expect to continue to be. Is that correct?
Yes.
Okay. Thank you. Second question. Just on the cash management review, I guess you sort of may have answered it in your action, but why are you announcing this, if you want us? Because the way you described it, it sounded like something that every large company would do consistently. It's introducing an element of uncertainty, which feels uncertain. If you're not making a major change, why are you announcing this now? What is the background to feeling the need that you're going to announce or are going to do some review in January?
Yeah. Look, Aaron, I'd just say it was more for reference. There's a combination of things. We've finished the share buyback. We're about to enter another four-year regulatory period. We did the same thing heading into RP1. And what we want to ensure is that capital management framework is fit for purpose for at least the next regulatory period. Our aims haven't changed, so that's still on providing the sustainable and growing dividend path, but we've called out the share buyback in the regulatory period. I'd say at the same time, we've had the formalization of the new operating model. We're accelerating copper withdrawal. So it was more a reference so that when we're coming back, like we said, it's more of the warrant of fitness check, and we'll come back at the full-year results post-review.
Okay. But just to clarify, is the initiative coming from the board, or is it something the two of you sort of initiated, or is it coming from debt rating agencies? Who has taken the initiative to announce capital management review with this half-year response?
Yeah. No, look, I wouldn't read into it too much, Aaron. I think as you'd expect, the conversations that JB and I and the exec have with the board as well, as we're working through that life cycle and about to enter a new regulatory period, it's just ensuring, again, that we're fit for purpose over the next reg period.
Okay. Perfect. Thank you.
Thanks, Aaron.
Once again, if you ask a question, please press star one on your telephone. Your next question comes from Phil Campbell with UBS. Please go ahead.
Yeah. Morning, JB. Quick question on the succession planning after JB leaving, and I'm going to see you go. Congrats, Mark. I just wanted to know anything on the CFO. Obviously, it's quite an important next few months with RP2 and obviously this cash management review. And so just if there's any comment on the succession planning for the CFO.
Yeah. I'd like to thank you, Phil. And look, I think for now, we'd say JB is still the CEO. I'm still the COO and holding the CFO accountability as well. We haven't got an announcement to make or further announcement to make around CFO, and we'd expect to do that in due course. But look, the fact that I'm here, I've been part of that design for the operating model. And as we're talking about this warrant of fitness-style capital management review, I'm here as part of that as well. But we'll make announcements in due course about the roles, what happens for CFO and COO.
Okay. Awesome. Will that be pretty given that you're taking over on the 15th of April, or it'll be after that?
No. It would be in line with that, if not before.
Yeah. Okay. Just wondering a few questions in terms of the decision to go 10,000 expansion. Could you just kind of give us a bit of color as to kind of background behind it? What kind of criteria do you run to kind of that decision? You've toned it down 40,000 to 10,000. Is it a return on capital calculation you go through, or what is the criteria that you use to decide that?
Yeah. I mean, clearly, ultimately, the return on that investment is the one that we are looking at most closely. Those 10,000, as I've mentioned in the presentation, they tend to be at the very edge of our existing footprint. So there are suburbs that just missed out because they were on the wrong side of the street, or they were one street down to where the UFB footprint stopped. Or I've mentioned the Milford Sound where we've just had a government-funded backhaul link that was established too, and we can then leverage that to do connections to a number of premises in that area at a reasonable cost. So what you can expect is those first 10,000 are the ones that were the most cost-effective for us to roll out to.
We also looked at areas where there was a lot of off-net people, so people that were neither on our copper network nor on our fiber network. There was no fiber, so that was easy. So for us, it's how quickly and cost-effectively we can roll out, and then how quickly there is pent-up demand for a better service, and therefore how quickly we can turn those passed premises into live connections and revenue-generating connections. So that's how we've picked the first 10,000. And then, as I've said, we'll need to have a conversation with the government in terms of the broader settings to see how we create an environment where the next batches become economical for us to invest in.
Great. Awesome. And I might have said one question that's on the capital management. This one's from Mark. I think it's page 30, and it talks about the capital management framework. And it kind of talks about kind of phasing of a prescribed CapEx within the dividend policy. I just wanted to check on that because obviously, when you put your RP2 submission in, you've got the 1.3% of CapEx. It's obviously phased over those years. Is there much room to phase that prescribed CapEx when you kind of put that out there to ComCom, or how should I read that?
Sorry. It was cutting out again, Phil, but I think if I'd understood your question, you'd say yeah. Well, when we've phased that overlay for the discretionary CapEx, yeah, there is. It's based on timing of when we think these can happen. So I don't know if there was a second part to the question. Sorry, Phil. It is cutting out.
No. I think all I was asking was just with the submission, obviously, the CapEx plan there on a preliminary basis, is there much room to shift the discretionary or phase the discretionary CapEx? Is it pretty much kind of?
Oh, sorry. You're not meaning sorry. I understand you. You're not meaning the NZD 200 million. You're meaning in general around the discretionary CapEx. Yeah. Well, I mean, look, we're balancing those plans as you would expect, as the essential CapEx, if you will, of the things that we really have to do. There is a sustaining element of keeping the network going. There's a sustaining element that's actually building augmentation and capacity into the network for future growth. And then there's equally the discretionary portion that we would invest into other growth areas. And if you think about the operating model that we've put in place now, particularly with infrastructure, if you took that, the independence now of those value streams actually does open up a lot more opportunity for us to focus and invest on some of those areas.
Great. Thank you.
There are no further questions at this time. I'll now hand back for closing, Mark.
Okay. Well, listen, thank you very much. I'll just go through those 6 bullet points that we put on the solid FY, sorry, half-year 2024. We do think that we delivered no surprise and a strong operating and financial results for the half. We're confident about the RP2 process, which will provide us the certainty for the next 4 years. We're excited about the new operating model. And as I said, we hope delivered a smooth CEO transition, which we'll deliver fully over the next six or to seven weeks. I will be doing the roadshows with Mark, so I'll look forward to catching up with some of you in person, and hopefully, we'll be able to answer your questions better than this time. Thank you again for joining us, and next time, we'll be Mark.