Telecom in limbo after UFB surprise

Telecom in limbo after UFB surprise

By Pattrick Smellie

Sept. 9 (BusinessDesk) – Telecom Corp. withdrew to the bunker this afternoon, cancelling media briefings with chief executive Paul Reynolds as it ponders its first round lock-out from the ultra-fast broadband roll-out today.

Crown Fibre Holdings, the government’s vehicle for the $1.8 billion “fibre-to-the-home” initiative, announced this morning it was prioritising negotiations with three locally-owned, regional fibre bidders in Timaru, the Waikato, and Whangarei.

Telecom shares sank 5.2% to $2.02 on the NZX today in a decision that investors saw as bad for Telecom. Time is now running out for Telecom to structurally separate by July next year, which it has offered to do in order to participate in the UFB project.

"It takes away some of the optimistic scenario - the likelihood of a national outcome that was Telecom-centric," said Paul Harrison, who manages $3 million at BT Funds Management.

On the three regional proposals that are favoured: "two of the regions were quite small and they were probably going to do something like that anyway."

"Does this mean we're going to have a completely fragmented market where Telecom has to compete against small regional players with a lower cost of capital?"

He said the 5% drop in Telecom's share price today was probably "a bit extreme" though the market had got ahead of itself in speculating that Telecom would be the central plank of the UFB rollout.

While the company remains on the CFH short-list, neither Telecom nor the government agency know when the next move on short-listing will come, with CFH indicating the ball was now in would-be partners’ court to improve their offers.

The process threatens to leave the beleaguered national telco and would-be national UFB solution provider “in limbo for anything up to a year,” one close observer told BusinessDesk.

“You can’t state if there is going to be announcements made before October, or before Christmas,” said CFH spokesman Paul Clearwater.

CFH hopes to be signing agreements to proceed with the three prioritised bidders by the end of next month, to meet Communications Minister Steven Joyce’s political need for first earth to be turned on the UFB initiative before Christmas.

However, Telecom warned in a statement that if the government was serious about Telecom’s participation in the UFB initiative, it needed to know the regulatory, Rural Broadband Initiative, and legislative reforms that would also be required and which lie outside CFH’s mandate.

“Telecom’s proposal includes a potential structural separation by demerger in July next year. Telecom will need appropriate engagement with the whole of government in order to meet this challenging timeframe,” said Reynolds in the written statement, which the company decided to make their only words on the matter today.

“Telecom remains open to partnership with other public and private sector owners of fibre assets, including the three parties prioritised for negotiation, where partnership can improve the overall economics of a national solution.”

The outcome was hailed by Vaughan Baker, the chief executive of the Regional Fibre Group, five of whose members – Alpine Energy, a Central Waikato consortium, and Northpower – now head into prioritised negotiation with CFH on the country’s first UFB roll-outs.

“It reinforces and justifies the regional approach,” he said. “I’m not anticipating too much of a lag between the first tranche (of prioritised bidders) and subsequent tranches.”

(BusinessDesk)

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