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):
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