Telecom shunned in Crown fibre negotiations
ABOVE: Telecom (TEL: NZX) was put in a trading halt as the news broke. As trading resumed, its shares nose-dived 6.12%, or 13 cents, to $2.00 before recovering a little to close down 5.16%. (Chart courtesy NZX.)
Crown Fibre Holdings has released its shortlist of bidders for the government's $1.35 billion ultrafast broadband project.
In a bombshell for Telecom, whose chief executive Paul Reynolds has said his company must succeed with a national bid to participate, the three bidders named for "priority negotiations" are all members of the Regional Fibre Group - an alliance of power companies, lines companies and regional fibre providers.
Crown Fibre Holdings (CFH) said in a statement that the three parties, representing a "significant portion of the UFB build" that it has "initially elected to commence negotiating binding offers" are:
1. Alpine Energy (Timaru);
2. The Central North Island Fibre Consortium (Hamilton - including Cambridge and Te Awamutu - Tauranga, New Plymouth, Wanganui, Hawera and Tokoroa); and
3. Northpower (Whangarei).
Only one party was completely knocked out of the process: Canada's Axia NetMedia, backed by Vodafone.
Scroll down for the full short-list.
Telecom (NZX: TEL) was put on a trading halt as the news broke. As trading resume soon after, the company's shares fell 6.12%, or 13 cents, to $2.00.
Nationwide solution RIP
"This puts any suggestion of a nation-wide solution to rest and should give a lot of heart to regional bidders," Tuanz chief executive Ernie Newman told NBR in the immediate wake of Crown Fibre Holdings' announcement.
"Maybe John Key's prediction of fibre in the ground somewhere before Christmas will still come to pass."
Labour communications spokesperson Clare Curran was also writing off Telecom as a national bid contender.
Today's announcement was a "strong indication that a regional approach will be led by electricity lines companies," Ms Curran said.
“It is now clear that Telecom will not be leading the ultrafast broadband rollout in urban New Zealand."
The Dunedin South MP also noted the stark difference in strategy between the Rural Broadband Initiative (RBI), where the government has now decided it will only take national bids, and the regional approach apparently being favoured - or at least prioritiesed - by Crown Fibre Holdings for the urban fibre initiative.
Give him the nation or give him death
Dr Reynolds has previously told NBR that "Auckland is half the country", and that Telecom was committed to a national bid; a Chorus spin-off was impractical without a nationwide pitch being accepted.
The question now is whether Telecom can compromise and accept a situation where, say, it wins Auckland, Wellington and Christchurch but not several smaller centres (although, of course, other contenders could still prevail in the main centres).
Telecom's initial reaction: underlining it's bid is national
However, Telecom's initial reaction seemed to militate against any compromise. In a statement issued minutes after CFH's the company re-emphasised that it had made a national bid.
More, the company also said its bid involved the "integration" of the UFB with the separate, $300 million Rural Broadband Initiative (RBI).
Going over Crown Fibre Holdings' head
In a foretaste of political arm-wrestling to come, Dr Reynolds also said this morning that "Crown Fibre Holdings does not have a mandate in the areas of RBI, regulatory reform and legislative change.”
Telecom needed ""appropriate engagement with the whole of government" [NBR's italics] to meet the UFB's "challenging timeframe.”
Crown Fibre Holdings can only recommend binding offers to CFH shareholding ministers Steven Joyce, Bill English and Simon Power. The government can accept them, or go its own way.
And as Dr Reynolds is hinting, going it's own way could involve uniting the urban and rural fibre schemes - providing Telecom with an alternative path to a national fibre win.
In terms of the conventional process, the remaining shortlisted parties will continue in the partner selection process, Crown Fibre said, providing Telecom with a ray of hope that its national bid could prevail within the terms of the current tender.
Communications and Transport Minister Steven Joyce was in Christchurch this morning, inspecting earthquake damage, and unable to immediately comment.
Pricing, funding, backing
"These three parties have displayed the best proposals including a combination of access prices, funding provisions, industry experience and financial backing," said CFH Chairman Simon Allen.
"CFH believes these respondents can drive strong uptake and offer competitive access prices that providers of retail services will find attractive."
Recycling Crown funds
A series of regional bids sit well with CFH's pet concept of "recycling" cash in the government's $1.35 billion kitty.
That is, when one Local Fibre Company gains its first connection, it starts paying back CFH - freeing up the capital to re-invest in other regions".
"On the basis that CFH successfully concludes binding offers with these parties, the Government and its partners will be bringing fibre to a significant part of New Zealand, which marks a real milestone for this initiative.
Negotiations with others on the way
"CFH will be having further discussions with the other shortlisted parties, and as a consequence of those discussions will elect other parties to negotiate with to meet the balance of the UFB target," Mr Allen said.
"All shortlisted parties remain important contenders for future negotiations of binding agreements.
Still open to Telecom
"CFH is open to either a Telecom, New Zealand Regional Fibre Group solution, or some form of combination for the balance of the UFB project," Mr Allen said.
The party that has not been shortlisted at this stage is Canadian-based Axia NetMedia. Mr Allen said this party's bid included certain elements that were not part of the government's UFB policy.
Binding offers October, roll-out by end of year
"I am pleased to confirm that CFH is well on track to make recommendations for binding offers for initial investment partners to shareholding Ministers in October 2010, and to commence the roll-out of UFB before the end of the year," Mr Allen said.
Shortlisted and "elected for negotiation":
- Alpine Energy Ltd covering Timaru
- Central North Island Fibre Consortium. This is a consortium between WEL Networks Ltd, Waipa Networks Ltd and the Hamilton Fibre Network, and covers Hamilton (including Cambridge and Te Awamutu), Tauranga, Tokoroa, New Plymouth, Hawera and Wanganui
- Northpower Ltd covering Whangarei
Shortlisted:
- CityLink Ltd covering Wellington region including the Hutt Valley and Porirua
- Central Fibre Consortium. This is a consortium between Counties Power Ltd, Eastland Group Ltd, Horizon Energy Distribution Ltd, Unison Networks Ltd, and Centralines Ltd, and covers Pukekohe, Waiuku, Rotorua, Taupo, Whakatane, Gisborne, Napier, Hastings, Palmerston North, Feilding and Masterton
- Electra Ltd covering Levin and Kapiti
- Electricity Ashburton covering Ashburton
- Enable Networks Ltd covering Christchurch and Rangiora
- Flute Network. This is a consortium between Aurora Energy Ltd, Electricity Invercargill Ltd and The Power Company Ltd, covering Dunedin, Invercargill and Queenstown
- Network Tasman Ltd covering Nelson and Blenheim
- Network Waitaki Ltd covering Oamaru
- Telecom Corporation of New Zealand Ltd covering all 33 Candidate Areas
- Vector Ltd covering the Auckland region
- Westpower Ltd covering Greymouth
Not shortlisted
Axia NetMedia Corporation, covering all 33 Candidate Areas
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Comments and questions21
Now what guys?
No iPhones, no Fibre rollouts, 2degree's kicking your advertising creative and pinching your customers.
I can't see any reason to be excited about your brand or business.
As of 8:58 am there is no trading halt on the Australian listing of Telecom
shares. Hope the Kiwis are not keeping the Aussies in the Dark!!
Now, why you haters gotta hate?
Telecom should walk away now from what has become a farce and a deliberate attempt by government to further erode the value of Telecom shareholder's investments. I would prefer to accept a lower value on my shareholdings if Telecom were to remain outside of the current lottery and end any talk of a demerging operational assets.
No ASX halt because it was only a short one, with the news being public before 10am Aussie time.
If the lads from Timaru can get fibre to my door here in Avondale Auckland, I'm all for them doing the job.
Bud Fox
Move on mate.
Give credit where credit is due.
Your refernce to SCF is unwarranted in regard to this story.
The South island has funded billions of tax dollars for Auckland infrastructure and accepts this as "life' - we all live in one country and sometimes things happen. But the South Islanders didn't winge about it - they just got on with it.
Get a life Bud Fox
... a bunch of bars in the Viaduct Harbour as Auckland Infrastructure at all. I wouldn't describe the development in Paratai Drive as infrastructure either if we are talking SCF.
As for the South Island funding Auckland infrastructure then I suggest you might actually run the ruler over where the tax dollars are actually collected and spent. For example, try matching where the petrol excise duty is collected and where the National Roading Fund is actually spent ie where NZTA funds State Highway network and subsidies for City and District Council capital and maintenance works - over half of it is collected in Auckland and it doesn't even come close to getting a quarter of it. That's only a small example - if you start playing the 'poor me I'm funding bad Auckland' card then I suggest you might look at where the majority of the 15% of income tax payers (the ones that pay two thirds of the tax) are actually resident or where GST is collected - you'll probably find it's mainly north of Cook Strait.
New Zealand is and will be funding a considerable amount of funds into the Christchurch, Kaiapoi and Selwyn Districts. So 85% of the economy will be helping out the 15% that's actually generated in the Canterbury region.
But hell we aren't going to go on whinging about it either - as the PM pointed out it could happen tomorrow to any of us anywhere in the country. As a nation we are going to help each other out - the sooner we realise that we are all from the same bloody country then we can park the petty bickering and get on with getting Canty back in the game and having decent broadband at a fair price while a good proportion of the residents of our major trading partners enjoys fibre to the door with uncapped data.
After Telecom's ridiculously incredibly slow nation wide broadband role out to date, why should New Zealanders give them yet another chance to extort us. Should they be considered above other local companies such as Vector?
Telecom showed clear failure to deliver on their GSM roleout through cost cutting in the design of their GSM network. Telecom has already had several 111 emergency outages this year alone, so there is no way the government should allow them to create another monopoly on the finre backbone for the country. There needs to be regulation in place and more players to ensure that New Zealanders are not locked into another Telecom monopoly.
The commerce commission is still pushing for regulation to lower Telecom's cellular termination rates. We are almost the highest in the developed world for mobile termination rates and wholesale broadband fees for other carriers, why give them further free run. Other ISP's are even over charged for access to road side cabinets. Which is a laugh since they were 'given' to Telecom as part of the local loop.
End the communications monopoly in this country CFH!
Sorry did I miss something? Where did Auckland come into this? Those Aucklanders sure are lucky their friends from Timaru have been so generous in funding all their infrastructure. Go Timaru you guys are legends.
Yes I'm with you on that. They will probably be led by a kindly 80 year old gentleman (with his note books) and a big fat cheque from the government. Lots of money for Timaru funded fibre.
It was my decision as the government asked me to assess and handle this.
Great opportunity to pickup TEL at a better price, hardly anyone is selling, only a few panic merchants.
TEL will be back, the competition will be good for them, and then their size will allow them to squeeze every drop of margin out of their suppliers and keep offering added value services.
Now they know they are out of the marginal areas they can concentrate on a "big boyzs" solution without the additional costs they had assumed they would need to cover.
Much better to have multiple players focusing on particular sectors and then we avoid coss sector subsidies.
The CFH decision is far from a lottery! After the decision has been made and the bid details are released the govt would have a lot of explaining to do if Telecom had the best bid.
Let's be real a regional locally owned company can accept a lower ROI than Telecom ever could.
"Other ISP's are even over charged for access to road side cabinets."
Your sentence is incomplete.
I assume you mean "Other ISP's are even over charged for access to road side cabinets because the Commerce Commission set a regulated price that I believe is too high"
Telecom had no say in the price of access or backhaul. These are regulated products,
Excellent,, now lets get rid of Telecoms little evil brothers Chorus and Visionstream, and put this Business back into NewZealands hands , not money grabing Australian companies.
Couldn't happen to a nicer crew
- dragged heals on structural seperation ... & continues to do so
- once lowered cost of phone rates in wgtn becuase of competition, while the rest of use wondered when us?
- has had ample opportunity to do the right thing for all kiwis ... but again used its monopoly more like a bully boy and dropped the ball
- perhaps stick to getting XT reception out to containers out in the gulf and trout fishing
- where to they get their CEO's ??
got any data to back that up ....? cough cough BS
Stick to drinking speights bro... brewed in AKL
Telecom is probably hoping to get a slice of the pie in the main centres because of their existing networks. Vector & Northpower have been quitely laying their own network with Blown fibre subducting for over 10years, possibly mirroring Telecoms in Auckland and probably other centres around nz.
Chorus, or Telecom trained staff will probably migrate over to who ever wins contracts. That will leave Chorus bleeding slowly of staff over the next 10years until copper becomes redundant.
Craphapins
By the way. The only thing Auckland gets from the South Island is the Cold Winter blasts, off the Southern Alpes in Winter.
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