Telecom on track for split with UFB contracts win

By Paul McBeth

May 24 (BusinessDesk) – Telecom Corp. has finally emerged the big winner in the government’s $1.35 billion urban ultra-fast broadband initiative, winning the key Auckland and Wellington markets, while Christchurch has gone to local provider Enable Networks.

The decision by the government’s negotiating vehicle Crown Fibre Holdings Ltd. puts Telecom on track for a shareholder vote on structural separation of its infrastructure arm, Chorus, and the rest of its business.

The phone company won the bulk of the bid worth some $929 million, including Auckland and Wellington, with Enable getting Christchurch. They join Northpower Ltd., which won Whangarei, and the WEL Networks-led consortium, which won the central North Island.

Vector Ltd., which pinned its hopes on winning a chunk of the Auckland market and helped fund the Regional Fibre Network combined bid, has been left out of the initiative altogether.

“We have made the best possible use of the government’s funds in striking these agreements, using the public private partnership model to leverage $1.3 billion of investment to ensure the deployment of UFB to 75% of New Zealand’s population,” Crown Fibre Holdings chairman Simon Allen said in a statement. “The total cost including private sector co-investment is likely to be in excess of $3 billion.”

That ends the long-running saga which has kept Telecom on tenterhooks for the past couple of years, and the phone company will have to demerge its Chorus unit to participate. The company is holding a conference today over the decision. The shares fell 1.1% yesterday to $2.28 and have gained 6.2% this year.

Craig Brown, who manages $1.1 billion of local equities at OnePath New Zealand Ltd., said the split will leave two entities with very different cash-flows. One will be a utility-network company, while the other a wholesaler and retailer.

“It’s an end of an era really,” Brown said. “It’s something that’s been hanging over Telecom for quite some time, and it’s been difficult to form a view. Now we’ve got some finality, at least the market can be more informed.”

Communications Minister Steven Joyce said the access prices Crown Fibre negotiated “will ensure the benefits of fibre are within easy reach of businesses as well as everyday New Zealanders.”

Monthly wholesale household prices will start at $40 or less for entry-level products, and $60 a month for 100 megabit products, with no connection fees for households.

Telecom chief executive Paul Reynolds said Chorus expects to be able to deliver fibre past all premises in its 24 regions by 2019, and that wholesale prices will be in line with current copper pricing.

Last week, Joyce abandoned plans to introduce a decade-long regulatory holiday from Commerce Commission oversight, just two days after Parliament’s Finance and Expenditure Committee signed off on legislation enabling a Telecom split.

(BusinessDesk)09:38:23

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