Telecom shares tumble

Telecom shares fell 6 percent after the company missed out on being named for priority talks in the Government's $1.5 billion ultra-fast broadband (UFB) initiative.

Telecom did not make a list of three initial investment partners named for prioritised talks for a portion of the project. It is on a list of 14 companies which the Government's Crown Fibre Holdings (CFH) said remained important contenders for future negotiations and would continue in a partner selection process.

The three selected parties are Alpine Energy covering Timaru, the Central North Island Fibre Consortium covering the wider Hamilton area, Tauranga, New Plymouth, Wanganui, Hawera and Tokoroa and Northpower covering Whangarei.

Telecom estimated the areas covered by these three parties represents around 12 percent of the population of New Zealand.

Canadian-based Axia NetMedia Corp missed out with CFH chairman Simon Allen saying its bid included elements that were not part of the Government's UFB policy.

SHARE PRICE FALLS

Telecom shares were halted ahead of the announcement. They fell sharply when trading resumed and were down 13 cents at $2 in early afternoon trading. The plunging share price dragged the New Zealand sharemarket down.

"Telecom is not getting the first cut of the feast," said David Price, adviser at Forsyth Barr.

"They are not out of the room but any negotiating they have to do is with the three parties selected as opposed to CFH," he said.

However, Mr Price said it was not the end of the world and the market had probably over reacted.

"The announcement should be viewed as slightly negative but not to the extent that the stock has fallen today," he said.

Mr Allen said CFH was well on track to make recommendations for binding offers for initial investment partners to shareholding ministers in October and to start the rollout of UFB by the end of the year.

Brokers said that today's announcement means that the Government has opted for a regional approach rather than a national approach with Telecom.

Vector Ltd is on the short list covering the Auckland region.

The other parties on the short list of 14 are CityLink Ltd covering Wellington Region including the Hutt Valley and Porirua, Central Fibre Consortium. Electra Ltd covering Levin and Kapiti, Electricity Ashburton covering Ashburton, Enable Networks Ltd covering Christchurch and Rangiora, Flute Network covering Dunedin, Invercargill and Queenstown, Network Tasman Ltd covering Nelson and Blenheim, Network Waitaki Ltd covering Oamaru, and Westpower Ltd covering Greymouth.

Telecom covered all 33 candidate areas.

Mr Allen said the three prioritised parties displayed the best proposals including a combination of access prices, funding provisions, industry experience and financial backing.

"We recognise that our bid is more complicated than those of other bidders, and that Crown Fibre Holdings does not have a mandate in the areas of RBI (rural broadband initiative), regulatory reform and legislative change," said Telecom chief executive Paul Reynolds.

"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."

TELECOM 'CAN'T EXPECT WHOLE PROJECT'

The short-list is a sign that Telecom cannot expect the whole project to itself, and a spur to local governments to make UFB installation as easy as possible,  Vector chief executive Simon Mackenzie said.

Vector is vying with Telecom’s Chorus unit for rights to deploy UFB infrastructure in Auckland, the largest national market.

"The government has remained strong in the view that regional, locally owned solutions are hugely valuable," Mackenzie said..

"That’s a really important signal.

"They have potentially taken off the table the all-or-nothing national solution and Telecom appears to have shifted its position today where they now say are open to partnerships."

On the battle for a slice of the action in the Auckland UFB roll-out, Mackenzie said Vector would participate “in a process that continues.”

"We look forward to being able to deliver an outcome that works for both CFH and for local ownership in Auckland."

Mackenzie speculated that community-owned bidders may be more able to make attractively priced bids than NZX-listed entities such as Telecom, since local owners might accept lower rates of return on their investment in the interests of their communities having UFB services.

- WITH BUSINESSDESK

- NZPA