Vodafone NZ squeezes cheaper deal from Vocus in contract renewal

Vocus CEO James Spenceley
Estimated ISP market share (Source: Commerce Commission Annual Telecommunications Monitoring Report 2013, released May 21, 2014. Callplus includes Slingshot & Flip sub-brands). Click to zoom

Vodafone New Zealand, the country's second-biggest internet service provider, has extended its international internet capacity supply contract with ASX-listed Vocus Communications for another two years at a cheaper rate. 

Vocus brokers international bandwdith, and is one of the 50% Telecom-owned Southern Cross Cable Network's largest wholesalers.

Sydney-based company, which this month agreed to buy local fibre optic cable network operator FX Networks for $115.8 million, renewed its contract with Vodafone NZ, its largest IP transit customer, with an estimated reduction in annual earnings before interest, tax, depreciation and amortisation of A$4.5 million in the 2015 financial year, it said in a statement to the ASX yesterday. From 2015 no customer will account for more than 5 percent of Vocus's revenue, it said.

"Despite the reduced contribution from Vodafone, Vocus continues to expect very strong Ebitda growth for FY 2015," it said.

The FX acquisition is estimated to have more than doubled Vocus's annual revenue to A$136 million and lifted Ebitda to A$36.7 million in calendar 2013.

Vocus describes itself as the leading independent provider of wholesale and telecommunications services in Australia and New Zealand, providing internet, fibre and ethernet, and data centre services.

Last month the Australian company announced the acquisition of a 10 percent interest in the Sea-Me-We 3 undersea cable linking Perth, Australia, with Singapore from Telecom New Zealand for US$2.3 million.

Shares of Vocus dropped 6.6 percent to A$5.14 yesterday, having soared 47 percent this year.


POSTSCRIPT

Vodafone's cheaper cable deal shows the benefits of looming international cable competition.

I'm still struggling to see how Hawaiki Cable will get funding together, but the Tasman Global Access (TGA) cable is a done deal.

A jointed venture betweeen Telecom, Vodafone and Telstra, the TGA will be a new Auckland-Sydney cable. The $US60 million project is fully funded, already has permits in place (by dint of being able piggy back on Southern Cross landing sites). It's due to go live by the end of next year.

The idea is that once bandwidth buyers have used TGA to hop across the Tasman, from Australia they have multiple cable choices up to Asia or the US.

We're already seeing the benefits of Southern Cross price cuts, whether due to looming competition or political pressure, in the form of more and cheaper unlimited data plans. 

Chris Keall

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