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Telecom matches $40 per month, enters UFB negotiations

Telecom matches $40 per month, enters UFB negotiations

By Pattrick Smellie

Dec. 13 (BusinessDesk) – Telecom Corp. has met the government’s demands for $40 per month “naked” ultra-fast broadband to win status as a preferred bidder for the $1.35 billion UFB revolving fund.

Crucially, Telecom has secured preferred bidder status in the most prized region - Auckland – while its competitor for Auckland roll-out, Vector Ltd., has only made the shortlist and has yet to be named a preferred bidder.

The announcement should be enough to allow Telecom to start preparing for a mid-2011 shareholder vote to split the company into Chorus, the network business that will build UFB infrastructure, and the rest of the company, which will compete for customers on the UFB network once built.

However, sources told BusinessDesk that both Telecom and Vector would have to wait now until after Christmas for further announcements. The Ministry of Economic Development has been working on a wider package of regulatory, tax and other reforms that would be required before Telecom would recommend its separation to shareholders.

That package may emerge around late January, while any further announcements on preferred bidders will be in the New Year, following a spate of preferred bidder announcements over the last week for both the UFB and rural UFB roll-outs.

Telecom was trading 2.9% higher than its closing price on Friday at $2.14 immediately after the NZX opened today, while Vector was unchanged at $2.41.

At the heart of Telecom’s acceptance as a preferred bidder is understood to be its willingness to match the $40 per month “naked” UFB pricing that won two regional bidders, Northpower in Whangarei and UltraFast Fibre Ltd., a consortium involving the Hamilton-based WEL and Waipa electricity network companies.

First earth will be turned on the Northpower roll-out tomorrow, allowing the government to meet a politically important deadline to have the UFB roll-out under way by Christmas, well ahead of next year’s general election.

Also chosen as preferred bidders are Enable Networks, covering Christchurch and Rangiora; and the Flute joint venture covering Dunedin. Negotiations are continuing with Alpine Networks, chosen in October as a preferred bidder.

A swag of other bidders, comprising the remaining members of the New Zealand Regional Fibre Group – a loose confederation of electricity network companies and fast broadband providers that includes Vector, have been shortlisted for potential designation as preferred bidders.

“There’s no way they (Vector) are out of the game,” said one source close to the process. However, Vector had yet to meet the price points and build costs that Crown Fibre Holdings Ltd., the government’s agent in the UFB process, is seeking.

Telecom’s chief executive Paul Reynolds welcomed the decision.

“We remain firmly of the belief that a structurally separate Chorus as the cornerstone of a national framework for fibre is the most efficient and effective way to deliver the government’s fibre vision and that is reflected in our proposal.”

CFH said in its statement announcing the latest preferred bidders that it was open to partnerships between preferred bidders, although the parties themselves would be responsible for such arrangements.

Reynolds reiterated Telecom’s “openness to partnership with other public and private sector owners of fibre assets where partnership can improve the overall economics and deliver fibre further and faster for New Zealand.”


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