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Reynolds on Crown fibre: give us the nation or give us nothing

Fri, 20 Aug 2010

At Telecom’s full-year result briefing today, NBR asked chief executive Paul Reynolds to elaborate on previous Crown fibre comments made by Chorus chief executive Mark Ratcliffe.

To wit, Mr Ratcliffe indicated if Telecom didn’t win the Auckland Crown fibre contract, it would not participate in the government’s ultrafast broadband (UFB) project, at all.

There was no diplomatic backdown.

Instead, Dr Reynolds sharpened the theory.

Telecom’s revised tender was for a national roll-out, the chief executive said - although he did see scope for subcontracting to and otherwise co-operating with “community lines companies” and others.

Auckland is half the country
“Auckland is half the country,” said Dr Reynolds, and a national bid would make no sense without it.

Asked after the briefing if Telecom would come back to the table with a revised tender if Crown Fibre Holdings did award Auckland to Vector (the leading non-telco contender), Dr Reynolds said his company would not.

De-merging is central to Telecom’s latest bid, and structural split implies a nationwide rollout. It would be “bonkers” for Chorus2 to try and operate with Auckland (or any other major centre) awarded to another Crown fibre contender.

Heads of Agreement
Dr Reynolds, and CFO Russ Houlden, seem to already be moving ahead, at least mentally, with both men looking forward to reaching a far-ranging “heads of agreement” with the government for a nationwide fibre roll-out.

The pair were looking for a comprehensive package they could in turn sell to Telecom’s shareholders, whose approval is needed (along with that of debt holders), before a structural split can take place. “They need to know it’s a good gig,” Dr Reynolds said.

Meanwhile, back at the mill
NBR put it to the Telecom boss that Crown Fibre Holdings seems to still beactively considering a multi-Local Fibre Company arrangement.

Key to this is CFH’s central operating principle that it can make the government’s $1.35 billion go further by “recycling."

That is, once one fibre winner hooks up customers and can pay back its Crown equity (effectively an interest free loan), that money can then be redistributed to another local fibre company.

It’s a philosophy that will only work if the 33 Local Fibre Company regions are allocated to a patchwork of bidders.

And, regardless, a second nationwide bidder is in town - literally, with Axia NetMedia chief executive Art Price back in Auckland to make a new push for the Canadian operator’s tender.

From skeptic to Crown fibre champion
But a chipper Dr Reynolds remained totally confident about Telecom’s prospects.

Although formerly openly dubious about the economics of fibre to the home (albeit at the same time stressing he wanted to find a way through) the Telecom chief executive today addressed the issue with unabated enthusiasm.

Crown fibre was a “fantastic prize”; it would be “magic” if Telecom could “break into the circle” to participate.

New Zealand needed to “seize the nettle” and get on with it.

If Telecom’s national bid was chosen, the UFB roll-out could begin “by the end of October” (don’t hold your breath for decision that fast, whatever the outcome).

Dr Reynolds acknowledged that Crown Fibre Holdings is actively exploring alternatives and that central “recycling” theme, still being actively promoted, does not gel with a national bid from Telecom (or for that matter, Axia).

But a fast, economically efficient and internationally competitive fibre roll-out simply could not take place without Telecom, the chief executive told NBR.

If left out of the circle
Left unspoken, at least today: Telecom’s threat to cherry pick the most commercial fibre business in the event that it does, once all the horse-trading is said and done, get left out of the magic circle.

And the fact that, at the end of the day, it doesn’t necessarily matter if Crown Fibre Holdings and Telecom can’t see eye-to-eye.

Just as he overruled the Commerce Commission on mobile market regulation, Communications Minister Steven Joyce has the power to reject Crown Fibre Holdings’ recommendations or, along with fellow shareholding ministers Bill English and Simon Power, modify them to his heart’s content.

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Reynolds on Crown fibre: give us the nation or give us nothing