Spark chases lower input costs in TeamTalk takeover bid

Spark chief executive Simon Moutter
SPKadd to my Stocks

Spark NZ wants lower costs from owning fibre assets in the Auckland and Wellington central cities in its pursuit of telecommunications minnow TeamTalk.

The country's biggest telecommunications company's rationale for mounting a takeover bid for TeamTalk is part of its plans to have more control over fibre assets, which would give the firm "more control over its input costs and provide an improved experience for its business customers" and scope to compete more aggressively with rivals which own infrastructure, as well as wholesale network owner Chorus, it said in its application to the Commerce Commission.

Spark says the acquisition would tick off that objective in Wellington city where TeamTalk's CityLink business has a big enough fibre network "to generate economic efficiencies for Spark, by enabling Spark to provide business data services to end users in the Wellington CBD using these local access fibre network assets," it said.

The Auckland-based company downplayed any overlap between its businesses with TeamTalk and said it would improve competition by providing a strong incentive for Spark to invest in the network and provide a competitive constraint for other network owners.

"The commission will be aware that customer service challenges that arise in a vertically disaggregated model have been frustrating for Spark in recent years," it said. "Greater control over the network serving its customers will enable it to better compete with other RSPs that either have their own local access fibre inputs (or unbundled copper access) in Wellington, such as Vodafone (and to a limited extent, Vocus) and place increased competitive constraint on other wholesale providers to improve service performance."

Spark is offering 80c a share to buy TeamTalk, valuing the business at $22.7 million, a 72% premium to where the stock was trading at before the takeover emerged. TeamTalk has urged shareholders to hold off from accepting the offer until they get a formal recommendation, which is expected this week. The shares last traded at 78c.

TeamTalk's managed data services and data centre services were already operating in highly competitive markets and Spark didn't see them as raising any competition issues, while there weren't any significant barriers to competing with free Wellington WiFi and there was no overlap between the firms in mobile radio.

Spark said TeamTalk's Farmside rural broadband and mobile service was too small relative to Spark to have a material effect on the broader market, while TeamTalk's digital microwave radio was used for different access points to Spark.

Much of Spark's application deals with TeamTalk's ExchangeNET business, which owns information exchanges that enable traffic between peer organisations. The main customers of these services are internet service providers, large enterprise and government entities, and content providers such as Netflix to allow faster connection with cached information.

Spark said it wouldn't have any power to restrict access to those exchanges if the acquisition is allowed because of the available rivals.

Spark shares rose 0.6% to $3.42.


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2 Comments & Questions

Commenter icon key: Subscriber Verified

What about the contracts held under TaaS - the all of Government procurement panel for Telecommunications? Spark is on the panel as a connectivity provider, and Citylink have the contact for 'Carrier Interconnect Services', eg: managing the GNET interconnect points at the exchanges and relevant IaaS datacentres.

It was explicitly stated in the TaaS RFP process that the manager of the Carrier Interconnect Services can not also be a panelist. This doesnt seem to have been raised anywhere, but the contract must form a reasonable part of TeamTalks forward revenues. Is this something the Commerce Commission would rule on?

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More control of fibre assets"

City link is a diamond in the rough.

I will not be selling at 80cents thank you.

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