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Telecom shunned in Crown fibre negotiations

ABOVE: Telecom (TEL: NZX) was put in a trading halt as the news broke. As trading resumed, its shares nose-dived 6.12%, or 13 cents, to $2.00 before recovering a little to close down 5.16%. (Chart courtesy NZX.)Crown Fibre Holdings has released its s

Chris Keall
Thu, 09 Sep 2010

ABOVE: Telecom (TEL: NZX) was put in a trading halt as the news broke. As trading resumed, its shares nose-dived 6.12%, or 13 cents, to $2.00 before recovering a little to close down 5.16%. (Chart courtesy NZX.)

Crown Fibre Holdings has released its shortlist of bidders for the government's $1.35 billion ultrafast broadband project.

In a bombshell for Telecom, whose chief executive Paul Reynolds has said his company must succeed with a national bid to participate, the three bidders named for "priority negotiations" are all members of the Regional Fibre Group - an alliance of power companies, lines companies and regional fibre providers.

Crown Fibre Holdings (CFH) said in a statement that the three parties, representing a "significant portion of the UFB build" that it has "initially elected to commence negotiating binding offers" are:

1. Alpine Energy (Timaru);
2. The Central North Island Fibre Consortium (Hamilton - including Cambridge and Te Awamutu - Tauranga, New Plymouth, Wanganui, Hawera and Tokoroa); and
3. Northpower (Whangarei).

Only one party was completely knocked out of the process: Canada's Axia NetMedia, backed by Vodafone.

Scroll down for the full short-list.

Telecom (NZX: TEL) was put on a trading halt as the news broke. As trading resume soon after, the company's shares fell 6.12%, or 13 cents, to $2.00.

Nationwide solution RIP
"This puts any suggestion of a nation-wide solution to rest and should give a lot of heart to regional bidders," Tuanz chief executive Ernie Newman told NBR in the immediate wake of Crown Fibre Holdings' announcement.

"Maybe John Key's prediction of fibre in the ground somewhere before Christmas will still come to pass."

Labour communications spokesperson Clare Curran was also writing off Telecom as a national bid contender.

Today's announcement was a "strong indication that a regional approach will be led by electricity lines companies," Ms Curran said.

“It is now clear that Telecom will not be leading the ultrafast broadband rollout in urban New Zealand."

The Dunedin South MP also noted the stark difference in strategy between the Rural Broadband Initiative (RBI), where the government has now decided it will only take national bids, and the regional approach apparently being favoured - or at least prioritiesed - by Crown Fibre Holdings for the urban fibre initiative.

Give him the nation or give him death
Dr Reynolds has previously told NBR that "Auckland is half the country", and that Telecom was committed to a national bid; a Chorus spin-off was impractical without a nationwide pitch being accepted.

The question now is whether Telecom can compromise and accept a situation where, say, it wins Auckland, Wellington and Christchurch but not several smaller centres (although, of course, other contenders could still prevail in the main centres).

Telecom's initial reaction: underlining it's bid is national
However, Telecom's initial reaction seemed to militate against any compromise. In a statement issued minutes after CFH's the company re-emphasised that it had made a national bid.

More, the company also said its bid involved the "integration" of the UFB with the separate, $300 million Rural Broadband Initiative (RBI).

Going over Crown Fibre Holdings' head
In a foretaste of political arm-wrestling to come, Dr Reynolds also said this morning that "Crown Fibre Holdings does not have a mandate in the areas of RBI, regulatory reform and legislative change.”

Telecom needed ""appropriate engagement with the whole of government" [NBR's italics] to meet the UFB's "challenging timeframe.”

Crown Fibre Holdings can only recommend binding offers to CFH shareholding ministers Steven Joyce, Bill English and Simon Power. The government can accept them, or go its own way.

And as Dr Reynolds is hinting, going it's own way could involve uniting the urban and rural fibre schemes - providing Telecom with an alternative path to a national fibre win.

In terms of the conventional process, the remaining shortlisted parties will continue in the partner selection process, Crown Fibre said, providing Telecom with a ray of hope that its national bid could prevail within the terms of the current tender.

Communications and Transport Minister Steven Joyce was in Christchurch this morning, inspecting earthquake damage, and unable to immediately comment.

Pricing, funding, backing
"These three parties have displayed the best proposals including a combination of access prices, funding provisions, industry experience and financial backing," said CFH Chairman Simon Allen.

"CFH believes these respondents can drive strong uptake and offer competitive access prices that providers of retail services will find attractive."

Recycling Crown funds
A series of regional bids sit well with CFH's pet concept of "recycling" cash in the government's $1.35 billion kitty.

That is, when one Local Fibre Company gains its first connection, it starts paying back CFH - freeing up the capital to re-invest in other regions".

"On the basis that CFH successfully concludes binding offers with these parties, the Government and its partners will be bringing fibre to a significant part of New Zealand, which marks a real milestone for this initiative.

Negotiations with others on the way
"CFH will be having further discussions with the other shortlisted parties, and as a consequence of those discussions will elect other parties to negotiate with to meet the balance of the UFB target," Mr Allen said.

"All shortlisted parties remain important contenders for future negotiations of binding agreements.

Still open to Telecom
"CFH is open to either a Telecom, New Zealand Regional Fibre Group solution, or some form of combination for the balance of the UFB project," Mr Allen said.

The party that has not been shortlisted at this stage is Canadian-based Axia NetMedia. Mr Allen said this party's bid included certain elements that were not part of the government's UFB policy.

Binding offers October, roll-out by end of year
"I am pleased to confirm that CFH is well on track to make recommendations for binding offers for initial investment partners to shareholding Ministers in October 2010, and to commence the roll-out of UFB before the end of the year," Mr Allen said.

Shortlisted and "elected for negotiation":

  • Alpine Energy Ltd covering Timaru
  • Central North Island Fibre Consortium. This is a consortium between WEL Networks Ltd, Waipa Networks Ltd and the Hamilton Fibre Network, and covers Hamilton (including Cambridge and Te Awamutu), Tauranga, Tokoroa, New Plymouth, Hawera and Wanganui
  • Northpower Ltd covering Whangarei

Shortlisted:

  • CityLink Ltd covering Wellington region including the Hutt Valley and Porirua
  • Central Fibre Consortium. This is a consortium between Counties Power Ltd, Eastland Group Ltd, Horizon Energy Distribution Ltd, Unison Networks Ltd, and Centralines Ltd, and covers Pukekohe, Waiuku, Rotorua, Taupo, Whakatane, Gisborne, Napier, Hastings, Palmerston North, Feilding and Masterton
  • Electra Ltd covering Levin and Kapiti
  • Electricity Ashburton covering Ashburton
  • Enable Networks Ltd covering Christchurch and Rangiora
  • Flute Network. This is a consortium between Aurora Energy Ltd, Electricity Invercargill Ltd and The Power Company Ltd, covering Dunedin, Invercargill and Queenstown
  • Network Tasman Ltd covering Nelson and Blenheim
  • Network Waitaki Ltd covering Oamaru
  • Telecom Corporation of New Zealand Ltd covering all 33 Candidate Areas
  • Vector Ltd covering the Auckland region
  • Westpower Ltd covering Greymouth

    Not shortlisted
    Axia NetMedia Corporation, covering all 33 Candidate Areas

 

Chris Keall
Thu, 09 Sep 2010
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Telecom shunned in Crown fibre negotiations
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