Telecom wins outstanding Crown fibre deals, bar Christchurch

Telecom chief executive Paul Reynolds

UPDATE 6pm: Forsyth Barr has downgraded Telecom from accumulate to hold.

Analyst Guy Hallwright - who has long predicted a major for the company in the UFB project - still sees Crown Fibre as a net postive.

However, with the company's shares (NZX: TEL) rising 15.5 cents today to a 15-month high of $2.435, Telecom is now well within For-Barr's target zone of $2.30 to $2.50.

Mr Hallwright said he would reconsider his hold rating once more detail was available on the Chorus de-merger, and the contract overall. Information rmained sparse, the analyst said.
 


UPDATE 11am: Speaking in Auckland this morning, Communications Minister Steven Joyce said $1.35 billion in government funding would be "more than matched" by investment Crown fibre contrace winners Telecom, Enable, Northpower and Ultra Fast Fibre, and retail service providers. He said the total investment would be around $3.5 billion. Earlier today, it was announced that Telecom had won around 70% of the project.

Nearly a billion dollars for Chorus ... and no repayments til 2025 - 2036
The government-owned Crown Fibre Holdings will invest directly in Telecom's spun-off network company, Chorus, through a mix of non-voting shares and interest-free debt with no repayments until 2025, and final repayment in 2036.

The relaxed schedule is a crucial new element introduced today; the three other  private partners will have to repay their Crown investment by 2019 as originally planned.

Mr Joyce said around 70% of the government's investment - or around $929 million - was going to Telecom's soon-to-be-spun-off Chorus division (which has won 69.4% of the UFB project by population, and 74% by premise).

Telecom said it would cost around $2300 to $2700 to run fibre past each house covered by the roll-out.

Forsyth Barr's Guy Hallwright said Telecom's UFB capex will be about $125 million in the company's 2012 financial year and $250m a year subsequently - which could potentially be accommodated without increasing its currently planned expenditure.

Curran: hundreds of millions in interest
Labour to complained that by deferring Telecom's full replayment on the company's interest-free debt untiil 2036 would cost tax payers "hundreds of millions" interest, making the $1.35 billion a "false price cap." The deal was a last-minute stitch-up that perpetuated Telecom's monopoly, communications spokeswoman Clare Curran said.

Telecom talking to others
Mr Joyce said Telecom's Chorus division was willing to work with Christchurch winner Enable, or even forming a 50/50 joint venture (the Telecomunications Amendment Bill, currently before parliament, allows Telecom to invest in regional Crown fibre winners).

Speaking at the same event, Telecom chief executive Paul Reynolds confirmed Telecom would be split in two, with Chorus spun off as a separately listed network company.

Dr Reynolds said Telecom was willing to work with Enable and other Crown fibre winners (Telecom has won 24 of 33 regions). The company had opened discussed with the Christchurch company, and was open to talking to others.

Enable Networks' chairman Bill Luff said his company had not received a sympathy vote. If anything, the quake had hindered the council-owned company's bid. He pointed to the fact that the city had lost its World Cup games. Enable's network was undamaged by the quake.

Reynolds: no thought about career plans
Asked if he would say on to head the retail company as Telecom was split in two, Dr Reynolds said "This is a big and complex deal as any in the world. Yes, I'm staying on. I haven't spent a moment reviewing my career plans."

Asked when a Telecom split would be put to a shareholder vote, Dr Reynolds said "before the end of this year." The mechanics of a company split would take until the end of the year to work through.

 


9am: Telecom has scooped 24 of the 25 remaining contracts in the government's $1.35 billion ultrafast broadband initiative, including Auckland and Wellington - and will now split into two separate companies - pending shareholder approval.

Christchurch and Rangiora were awarded to council-owned Enable Networks, but the remaining regions went to Telecom.

With all 33 Crown Fibre contracts now signed, there are four winners:

  • lines company NorthPower (Whangarei);
  • Ultra Fast Fibre, led by lines company WEL (six central North Island regions)
  • fiber network operator Enable (Christchurch)
  • and Telecom, which won the balance of the Crown fibre regions (see table below)

The winners will build open access, wholesale networks, selling broadband access to retailers such as ISPs.

A prohibition on retail companies holding a majority share in Crown fibre companies means that Telecom must now split into separate retail and network companies, each with its own chief executive and board, and each separately listed on the NZX.

The government-owned Crown Fibre Holdings will invest directly in Telecom's spun-off network company, Chorus, through a mix of equity and debt securities - "not shares" -  that will be repaid over 15 to 25 years.

Shareholder/debt holder approval required
Communications minister Steven Joyce today confirmed that Telecom's Chorus division would be spun off as part of the deal.

The split will require shareholder and debt holder approval, and the company has said it will take several months once that approval is gained.

Two of the highest profile analysts covering Telecom have split down the middle on Crown fibre. Forsyth Barr's Guy Hallwright sees participation in the ultrafast broadband (UFB) initiative boosting the value of the company's shares to $2.30 - $2.50. Deutsche Bank's Geoff Zame sees the economics of the rollout as thankless, and has a 12-month target price of $2.10. Telecom shares (NZX: TEL) closed yesterday at $2.28.

Enable's Christchurch rollout is scheduled to begin immediately.

Who will hold national coordinating role?
Major developments are still to come.

Mr Joyce has said the various regional Crown fibre companies will have to be coordinated by a national operating entity, which could be run by "a company such as Telecom". The Regional Fibre Group, an alliance of lines companies and fibre operators, has also put its hand up for the national coordinating role.

What will it cost?
Mr Joyce has promised wholesale fibre pricing under $40 (which duly appears in fact sheets published by Chorus and Enable today), but with any extra cost for exceeding a monthly data allowance, international data, and sundries like billing not included, it's still far from clear what retail providers will charge. (Crown Fibre Holdings site has crashed this morning, but Tuanz has reposted fact sheets about both deals. See the Chorus fact sheet here and details of Enable's agreement here). The Crown will bear the cost of connecting individual homes.

75% of the country by 2019
The ultrafast broadband initiative aims to deliver 100Mbit/s fibre optic cable connections to 75% of New Zealanders by 2019. Through a series of public-private Crown fibre companies, the government aims to connect schools, hospitals and 90% of businesses by 2015, with urban residential areas to follow (some may be hooked up earlier, depending on region).

The government expects private companies to at least match its $1.35 billion investment, and to buy out Crown holdings by 2019, creating fully private fibre companies.

A joint Telecom-Vodafone bid won the tender for a parallel project, the government's $300 million rural broadband initiative.

Where the deals stood before today's announcement (click to zoom):

* Ultrafast Fibre consortium consist of Wel Networks, Velocity, Waipa Networks, Hamilton Fibre Network

** Central (© Copyright Protected - The National Business Review 39)Fibre Consortium consists of Unison Networks, Counties Power, Eastland Group, Horizon Energy Distribution and Central Lines

Where the deals stood before today's announcement:

Mr Joyce said around 70% of the government's investment - or around $945 million - was going to Telecom soon-to-be-spun-off Chorus division (which has won 69.4% of the UFB project by area).

Telecom said it would cost around $2300 to $2700 to run fibre past each house covered by the roll-out.


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48 Comments & Questions

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Typical - old boys club.....

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Typical - the knockers get the boot in straight away. This is great news. Now we know what's happening and they get get on with rolling out the fibre.

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I think the term you are looking for is "swizz". Nothing more and nothing less.
Joyce, who isn't exactly a neutral in all these shenanigans will justify it (or attempt to) by saying it'll be good for the stockex and ACC's investments.
Bit of porking the latter up for the BBQ next year...with chef de mission Dick Smith pouring on the ETS sauce.
As for the Brogue Rogue....he ain't going anywhere. Why would he; he's got as much chance of being snapped up by the international telcos as that now-queen of a knitting circle, Gattung. Hell, when a head-hunter gets you a fat Lotto win, you don't admit you should never have even had a ticket.

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B S Bertie - will your conspiracy theories and lunatic rantings stop you from signing up for a fibre service? Do you want fibre or not?

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I have no problem with the exceptional technical skills of Telecom. They are right up their.
Management -- as demonstrated by the constant banging of the swing door -- is nothing but a stuff up. Talk to people in the upper and middle echelons.
Their customer relations are annually surveyed to be if not the worst, very near that. Consistently.
Stop being such a sycophant....the Brogue Rogue is too busy with himself to even notice you. (And if you think he some sort of messiah....call around at Cable & Wireless in the UK, where they have only just finished writing off a huge stuff up. It's taken years....about the same time you know who has been lurking around our trout streams
PS In my experience, today's "conspiracy theory" is is usually tomorrow's headline.

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BS Bertie taking any advice from you is like taking financial advice from Mark Hotchin on where to invest my money.... your glass half empty approach is tired and quite frankly boring...... good on Telecom/Chorus for winning the bid..... now lets see what pans out when they separate.... interesting times ahead....

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BS Bertie taking any advice from you is like taking financial advice from Mark Hotchin on where to invest my money.... your glass half empty approach is tired and quite frankly boring...... good on Telecom/Chorus for winning the bid..... now lets see what pans out when they separate.... interesting times ahead....

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Luckily Christchurch has it's current issues because it will take Enable that long to get it's act together. Performance to date has been average - Enable maybe needs new management at the very top and some major strategic partners/suppliers to get them across the line and in a position to provide Christchurch with an excellent broadband service

It is even more important now than it was a year ago.

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Yummy. A high fibre diet. It will be good for the nation. I'm really pleased with the certainty.

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congratulations Telecom, and good luck.

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Well done Chorus. At the end of the day the country needs the best team for the job. Answer - Chorus.

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Can't blame the Govt for this decision, but imagine the arrogance within Telecom now, they've just been set up for the next 50 years. Not sure that is a good thing for the consumer.

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Ummm ... what part of Telecom is splitting into two completely different, separately owned and listed companies did you not understand? Everyone will buy network inputs from Chorus on an open access basis - so no one can complain that Telecom owns a fixed access network that gives it an unfair advantage anymore.

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Actually Actually, I understand it perfectly well. I hope you understand that Telecom / Chorus have been handed an absolute monopoly for the life of the Network. You have to pay them to use their network unless someone else decides to build one of comaparable size, which obviously ain't going to happen.

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You're right - Chorus effectively becomes a monopoly fixed local access business - but the point you're missing is that it is heavily regulated in respect of price and non-price terms. The same thing happened in electricity when ECNZ was broken up. Choruss becomes another regulated utility business. The main point is that it is no longer vertically integrated into Telecom.

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That's correct. People should start to read the facts before they state their opinion.

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This win does not effect telecom in the slightest, this is all chorus, which is now a separate entity

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Actually, management looks pretty good to me, given what has just been announced - which is a significant achievement. (If you actually know anything about management you'd be running a major corporation yourself - and you're clearly just a mouthy back seat driver.) And the great thing about a market that provides choice is that, if you don't like Telecom, you can go somewhere else. So, if you don't like Telecom, quit your whinging and go elsewhere. Somehow, I don't think Telecom will miss you.

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It looks like Alpine Energy of Timaru have also been bullied by Telecom and given up the right to roll out broadband in South Canterbury.

How bizarre they were one of the shining lights with their initial proposal and one of 3 areas first allocated by Crown Fibre. Alpine may have weak management and governance mind you.

The consumers in Timaru will be annoyed when they find out - no local ownership and once again at the whim of Telecom ( Chorus ).

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new technology out 2day makes UFB obsolete already. Save the taxpayers money and wait. UFB already a dinasour!

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Nice work Chorus. Well deserved. Really has only ever been one company capable of delivering this.

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O' Great another decade of telecom screwing the country, but hey we got fibre now right? So thats like one step foward and 7 sideways!!!
I'm going to start a I hate steven joyce facebook page, first he refuses to regulate sky and now this!!!! ARGHHHHHHH!!!

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The outcome was set at the beginning, small telcos invited to the sandpit, millions of small players $$$ wasted.

In my view Crown Fibre had the plan all along!

Nothing like Sand being kicked in ya face.

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Why is the roll out going to happen so slowly? School, Hospitals by 2015, residential to follow on, 75% of the country by 2019. Another pathetic, drawn out infastructure project in NZ

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It will be obsolete before it starts

In fact it already is. This is just one big Government spin that will produce a second rate broadband offering and NZ business will be no closer to the global markets than now - they certainly won't be as competitive.

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So what does this mean for the tech companies who are rumored to have received a letter from CFH last week advising they are Preferred Suppliers for the UFB network?? Is it not worth paper it is printed on as Chorus will no doubt use their existing suppliers for all things fibre?

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Go Chorus - things are humming along!

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By the way you do know I work for Vodafone right?

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I think your trolling for replies now Bertie.... I cant see Vodafone employing a person of your unique "caliber".......

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Thought you worked for Satan - but they're both Red Brands I guess ...

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In Response to: Sick of telecom

Get a life buddy, or learn to read... Telecom has got nothing to do with this. Chorus got the deal...

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Curious George indeed. Many people will not be aware of the millions of dollars, & thousands of hours spent by hopeful suppliers parading new products & services to CFH. CFH is a debarkle & the process & performance is shameful. This lot makes Hotchin look like a boy scout.

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Sounds like a sore loser sucking sour grapes.

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ASMW I welcome your position on sour grapes..... Ask around you fool

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Reading the comments from all the detractors here makes me realise why little of significance ever gets off the ground in NZ. The point is that there is some actual investment in essential infrastructure happening, PLUS it will be a NZ company, with mostly NZ shareholders & employees, that does the bulk of the work. So we'll see not only jobs being created, but also value being added to the NZX PLUS schools, hospitals & communities across NZ get access to better connectivity than they have today.
So why all the freaking whining??

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"Plus it will be an NZ company." And that is supposed to be a good thing. I work hard for my $$ and don't care who owns the company as long as I get value for money. If it is an NZ co, then great. But if a UK, US, German or Aussie company can do it better, cheaper and more reliable, bring it on.

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Im just glad they have finally made a decision. Now we can get on with the more important discussion on what we do with it and how it can move NZ forward.

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Bottom line is no matter who got the deal telecomms in NZ are 3rd rate at best, and we all know this deal was done despite the façade of transparency.

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Rubbish. We have three world class mobile networks, and a load of MVNOs on them, delivering increasing competition and choice in mobile. We also have a Fibre to the Node (FTTN) network that by the end of this year will cover 85% of the population. This means we already have more fibre in the ground serving customers than comparable countries (like the UK and Australia) and giving us increasingly better speeds and performance. Don't believe me? Ask the Telecommunications Commissioner who rates our operational separation of Telecom and FTTN project as one of the best in the world. The UFB project will complete this by taking the fibre all the way to the door. We're leading the world and all you can do is complain. You're pathetic.

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What shall I do with my basketball advert now!?

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Gotcha..wot me paranoid?
Just read all this blog debate and a strange and unique pattern of sniping is on this topic, not typical of most threads.
I reckon Telecom have got some paid munters trying to ensure any negative spin is well and truly buried...gotta laugh..still wont save them from a public loathing profile just below Fonterra.

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For those paranoid Telecom sycophants.....do not that there is a space between the B and the S in the real version and BS Bertie is someone else truly having you on.
So don't throw any more toys.
I'll be back.......when you've tried to digest the largely excellent comments here....other than the two of you

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if that's not throwing your toys out of the pram I don't know what is..... Wake up and smell the coffee Bertie they won it.... take some more of your pills and move on buddy

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Anonymous obviously you no nothing about fiber if you think UFB is obsolete. The only restraint put on the capacity of fiber is the equipment at each end. Such is the nature of this industry the moment the equipment is ordered their is always better and faster equipment, it moves that fast. But obsolete it definately wont be.

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We're spending a billion dollars to get 2.5Mbps CIR???

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Absolute disaster for NZ - the legislation is incoherent and impossible to implement, the commercial deal is truly tragic, the minister who has to approve every regulatory decision in NZ will be conflicted by the "compensation" the crown will have to pay Telecom, and we still won't get more than a couple of MBps at the house because our national and international links have a far lower capacity than even our current access network (if you don't believe this check out the trials of FTTH run in Tasmania). It will take a decade before this mess can be sorted out and probably longer as everyone worth a damn in the sector either has or is planning to get the hell out.

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what will UFB really deliver that I cant already get? the whole exercise strikes me as more thana complete crock

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Don't get me wrong TNZ was always the logical option. Q1 how many of you would have 25 people building your house & expect it to "meet in the middle" on with it I say for delivering every teenager fast movies & porn ... how exactly is faster internet going to make us a smart kid economy ???? far out.................nup ..........

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