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TelstraClear sale latest: Vodafone bigwigs fly in

UPDATE July 9: Senior managers from Vodafone's head office in the UK are due to arrive in New Zealand either tomorrow or Wednesday, a well-placed source inside Vodafone has told NBR ONLINE.

Although on June 5 it acknowledged it was in talks to buy TelstraClear, Vodafone today played down the significance of the visit.

"This is a very standard, scheduled visit. Twice a year Russell and the NZ executive team run through a review of the local operations with Nick Read, CEO of Vodafone Asia-Pacific & Middle East Region, and that’s what this visit is all about,"  a Vodafone spokeswoman told NBR this morning. 

"It has been in the diary for months. To infer this visit is about anything other than a standard operational review would be wrong."

In a possible sign of lose-ends being tied up. TelstraClear and Chorus this morning announced they had reached a settlement over TelstraClear's multi-million claim for partial repayments or reduction in payments for Telecommunications Service Obligation payments made to Telecom between 2003 and 2010.

Under the demerger arrangements, Chorus assumed responsibility for any issues arising from the TSO litigation.

The two companies said in a joint statement that the terms of the settlement were confidential and that there are no outstanding issues.

TelstraClear gears up for "big announcement to staff"

UPDATE July 7:  NBR has learned that TelstraClear, which has its corporate headquarters in Takapuna on Auckland's North Shore, has booked a larger conference room at the nearby Spencer on Byron for "a big staff announcement."

The announcement will be made on either Tuesday or Wednesday.

TelstraClear has booked both days as a contingency, NBR understands.

On June 10, Telstra told the ASX and NZX that it was in talks with Vodafone about the possible sale of TelstraClear.

A spokesman for TelstraClear said the report was incorrect. He did not elabourate further.

June 5: Telstra is in talks to sell its fully-owned NZ subsidiary TelstraClear to Vodafone.

Latest: Telstra eyeing Telecom?

A Vodafone-TelstraClear merger would propel the pair into the $2 billion-plus revenue league.

For now, that territory is exclusively occupied by Telecom, which spun-off its Chorus network division in November as a condition of its Crown fibre deal (see "By the numbers" below).

A combined Vodafone-TelstraClear would also have more muscle in Ultrafast Broadband (UFB) negotiations with Chorus, and in content negotiations with Sky TV - a crucial area as the worlds of broadband and traditional broadcasting converge.

TelstraClear boss Allan Freeth recently told NBR ONLINE his company's T-Box partnership with Sky TV had reached a commercial "pain point" over a provision that restricts TelstraClear from seeking paid content from other providers.

The first approach was made by Vodafone, according to a TelstraClear statement to the ASX and NZX.

UBS is advising TelstraClear on the deal.

The statement adds: "Discussions are continuing and there is no certainty as to whether an agreement will be reached."

'Clearly negative' for Telecom
Deutsche Bank's Geoff Zame told NBR the proposed deal was "clearly negative for Telecom if they face a more effective and integrated competitor at top end of town."

He added, "TelstraClear has good infrastructure, fibre in all metro areas, good national backhaul links, HFC [residential hybrid fibre coaxial cable] in Wellington and Christchurch and has unbundled 100-plus exchanges."

"The combination makes sense for Vodafone," Mr Zame said. It could see Vodafone grow in the corporate market "where TelstraClear has a reasonable presence and infrastructure locally [but] has been a fairly ineffective competitor for many years.Telstra never appeared willing to put much capital into it for growth so Vodafone would be a better owner."

Vodafone has strong cashflows and may use them to boost the business, Mr Zame said.

Eye on TelstraClear's corporate customers, 4G-friendly infrastructure
IDC senior research manager Peter Wise also saw Vodafone making inroads with larger customers.

"TelstraClear is traditionally strong in the corporate segment - or example it supplies telecommunications to BNZ and NZ Defence Force - while Vodafone has often struggled in this segment, other than for mobile," Mr Wise told NBR ONLINE.

"TelstraClear has a comprehensive national fibre backbone network that Vodafone could utilise to backhaul its cell tower traffic - iincreasingly important as traffic volumes grow and high speed 4G services are deployed," Mr Wise said.

Grab for $100m worth of 4G-friendly spectrum?
Telstra made a statement to the NZX confirming the talks after market rumours this morning, including tweets from Voyager Internet CEO Seeby Woodhouse.

TelstraClear has only around 50,000 mobile customers (to Vodafone's market-leading 2.5 million) - and all of them on a rebadged version of Vodafone's 3G mobile service under a wholesale deal. But it is thought Vodafone has its eye on TelstraClear's spectrum.

"TelstraClear is sitting on spectrum worth at least $100 million, including large allocations at both 1800HMz and 2100MHz," Telco2 consultant Jonathan Brewer told NBR ONLINE.

He noted that the 1800MHz band is being used by Telstra in Australia for its new 4G network.

Later this year, the government will auction 700MHz spectrum freed up by the analogue-to-digital switchover.

Telecom, Vodafone and 2degrees are among those lining up to bid for the spectrum, which can also be used for 4G cellular networks that support much faster mobile data that today's 3G networks.

No stranger to Australasian growth by acquisition
Vodafone is now stranger to growth by acquisition or merger in the region.

In 2009, it merged its Australian operation with that of Hong Kong-owned Hutchison (operator of the 3 network) to form Vodafone Hutchison Australia, trading as Vodafone Australia.

Hutchison was 10% owned by Telecom NZ - the legacy of a dead-end mobile technology alliance early last decade. Post-merger, Telecom lost its board seat, but it maintains, to this day, a 5% stake in Vodafone Australia.

Re-ignite Telecom takeover talk?
Although Telecom shares took a hit this afternoon, the Vodafone-Telstra negotiations also have potential to reignite rumours around a Telecom takeover.

Last year, in the same legislation that enabled the Chorus spin-off and the Ultrafast Broadband project, the government lifted the Kiwishare prohibition on foreign ownership of Telecom. At the time, Deutsche Bank's Mr Zame said Telecom could represent an attractive take over target for an offshore buyer.

De-mergers were more likely to create value than mergers, Mr Zame noted.

Telecom spokesman Ian Bonnar said his company was "watching developments with interest" but would not comment further.

A TelstraClear spokesman said the company had no comment beyond what was stated in its ASX/NZX notice.

By the numbers: Landline ISP business

TelstraClear is the second largest ISP by the Commerce Commission's count. The watchdog put residential market share as follows for 2011 (TelstraClear is understood to have around 200,000 ISP customers and 270,000 all up):

Telecom: 49%
TelstraClear: 16%
Vodafone: 13%
CallPlus/Slingshot: 9%
Orcon: 5%
Others: 8%

By the numbers: revenue

Vodafone NZ: In its most recently reported year (the 12 months to March 31, 2011), net profit jumped 20% to $151.5 million, a 20% increase over the $121.6 million reported in 2010. Revenue rose 6% to $1.69 billion. It was a good result for Vodafone NZ's leather-jacket-and-jeans CEO Russell Stanners.

Vodafone NZ employs around 1300 staff.

TelstraClear: In Telstra's consolidated half-year result to December 31, TelstraClear is reported making a $A9 million ebit loss - an improvement on its year-ago $A17 million ebit loss. In its standalone business unit result, reported in New Zealand dollars with intercompany costs stripped out, TelstraClear reported ebit of $1 million for the half-year, against an $8 million ebit loss for the year-ago period. Revenue fell 4% to $353 million. It was another year for TelstraClear CEO and self-styled intellectual Allan Freeth.

TelstraClear also employs around 1300 staff.

Telstra: TelstraClear's numbers are chickenfeed next to those of its Australian parent, run by the New Zealand-raised David Thodey.

For the same half-year period, Telstra reported its net profit had increased by 23% to $A1.47 billion on revenue up 1% to $A12.4 billion.

Telecom: Telecom's December 31 half-year result saw the company make an adjusted net profit of $240 million (up 51%) on revenue that fell  8.5% to $2.32 billion (excluding its Chorus division spun off in November).

Telstra bought the Clear from British Telecom in 200 to form the company now known as TelstraClear. Including debt taken on by BT, the deal was worth around $435 million.

More by Chris Keall

Comments and questions

This makes a lot of sense. TCL has shown for some time that they have no real strategy for the NZ business unit.

Might make sense for Telstra, hard to see how it makes much sense for Voda

well i guess it makes sense for vodafone as it tries to expand customer base in Fixed broadband side of it.

Great opportunity for Vodafone to move to No.1 spot in NZ telco market. TCl has extensive fibre backhaul throughout NZ, and BB market share; giving a combined entity the scale to take on Telecom retail. Exciting times.

This is the best news to TCL employees for ages.

Great - the most useless mobile network provider in NZ takes over the most useless cable TV provider in NZ.... some value proposition, that!

The most useless Mobile Network in NZ title belongs to Telecom NZ.

Get your facts straight!

You could make that the only cable TV company!

I thought the world was going wireless!

How do you think Wireless & Mobile get their backhaul ya knob?

It goes over Fibre!

How do you think Wireless & Mobile get their backhaul ya knob?

It goes over Fibre!

Cool, I'm with telstraclear and would like some more data. kthanx

Epic Fail + Epic Fail = Epic Win?

Hells no.

Guess next question is whether this would clear any potential regulatory hurdles for a Telstra takeover of Telecom.

I agree that the spectrum that TCL owns is valuable but I doubt that Vodafone would be allowed to hang onto their existing spectrum as well. That would give them a 15MHz pair and a 25MHz pair in the 1.8GHz block which is arguably the most attractive block for initial LTE deployment. Surely the ComCom would put disposal conditions on some of this should this transaction go ahead.

How is this an epic fail. The fastest mobile network and the fastest fixed provider join together, surely a win. The only problem maybe does this reduce competition in the market?

Not an epic fail? What else would you call this? Hang on for the months of uncertainty & the lay-offs that will follow...

Dr. Alan Freeth managed Trust Bank before it was taken over by Westpac and lost his job. Moved to Wrightson’s and it was in turn taken over by PGG, and he lost his job again having fallen out with the new board. Moved to TC, played the best-dressed dandy, too clever for them all, including the Government, and went on to decline his company performance every year, and now faces a 3rd take-over bid in succession, none of which he was clever enough to see coming.

Maybe he should get another big company to wreck. 4th time lucky in leadership, perhaps...

Yeah I heard he was a bit righteous. When a kitchen was not up to his standards he banned staff from using it so to treat them like his children when they didi something bad.

Maybe his next move is to Sky? He could run the new bb business for them.

What would it look like, if Telstra Clever moved to acquire 2Degree's instead of accepting Voodoofones offer?
What would that look like?

Like a dog's breakfast, Kim.

If this gets approved by the Commerce Commission and the merger is managed well, it could be a much-welcomed shake-up in the market, providing a real, decent alternative to Telecom to both consumers and businesses.

Might be worth giving this a shot...

I Agree, In the very short time I've been here at TelstraClear I've found Freeth to be a bully amongst his senior staff and leadership team. His management style is from the 19th Century school of business, autocratic, non-collaborative, it really is "his way or the highway" Noone has the balls to stand up to him in his own team, moral within the TelstraClear team is very low with no active participation from the leadership team towards the General Staff (which is a shame as they're all talented intelligent people at the top of their game)
Freeth commissioned his new own office in Takapuna HQ at great expense (the one he had, for occasional use when not in Wellington was fine) right next to the precious kitchen (surprised he didn't commission an executive bog!) A whole finance department was moved for this. Just a complete waste of money and resource. Many staff feel aggrieved about this.
Overall poor performance from Freeth and Telstra not seeing clear value in it's own NZ company reflects this.
A new Vodafone under Stanners encompassing TelstraClear's staff tech savvy and acumen will be a good thing.
Time for me to hit the highway!

Note to self: don't work with Alan Freeth.

Dear Telstra,

Here's how to succeed:

1.) Tell Vodafone to bugger off
2.) Get rid of Freeth
3.) Buy 2Degrees
4.) Offer Oz fixed & mobile prices in to the NZ market
5.) Laugh Maniacally as Vodafone and Telecom collapse

You're welcome.

Anonymous Twit

Im with @anonymoustwit i like his idea!

You sir are an idiot

Like Steve Jobs said...... never trust anyone in business who insists on being called doctor ...... unless of course they are a doctor and then of course maybe you would call them doctor because you'd want them to mend you... anyway, you get the jist.... Nurse, I'm feeling a little faint.

Get rid of Herr Doktor.

i dont know where woosh is ??


TCL and VF culturally compatible? I think not. On paper the merger looks awesome. I think the reality is that leveraging their joint capabilities to compete against Telecom is a long shot.

TelstraClear Revenue growth has flat lined for the last 4 years. It is run by the few earning far too much money and there is a massive pay gap to the next level of management. The senior leadership run the place through fear and are unapproachable.

Utter drivel.

check NZSX.....TLS trading halt 10:08