Fibre announcement pips Telecom

Electricity lines companies look set to cut a swath through Telecom's network after the Government announced it was negotiating with lines companies to build its ultrafast broadband network in much of the central North Island as well as in Whangarei and Timaru.

The announcement caught Telecom and its investors unawares.

Chief executive Paul Reynolds made and then, at short notice, cancelled media interviews as the company's share price slid. He said Telecom "continued to believe that a national solution is the most efficient and effective way of delivering fibre while avoiding duplication and waste".

Lines companies are set to get the job of rolling out fibre to 562,000 people, just under 15 per cent of the territory that will be covered by the ultrafast broadband (UFB) network, with a consortium led by Hamilton's WEL Network preferred to build the network in Hamilton, Tauranga, New Plymouth and Whanganui.

Crown Fibre Holdings chairman Simon Allen said that elsewhere all bidders had more work to do. At issue were "build prices, designs, access prices, and we are very interested in getting the best outcome for consumers".

Analysts said that while yesterday's announcement would send shock waves through the sector, it was not clear it was the "big one" and Telecom could still pick up the job of building the remaining 85 per cent of the network, including in the main centres of Auckland, Wellington and Christchurch.

Telecom has previously indicated it was interested in partnering with the Government and splitting into two businesses only if it was chosen as the "cornerstone of a nationwide solution". But Mr Allen was confident Telecom was not about to withdraw from the tender.

"They have said they are willing to work with respondents in certain areas anyway. There is nothing in this, I think, that would stop people wanting to continue [to participate]."

A withdrawal by Telecom would leave the UFB tenders uncontested in all 33 cities.

Crown Fibre announced Canadian company Axia NetMedia had not been shortlisted for any contracts, meaning Telecom and individual lines and fibre companies and consortiums are the only contenders.

In Wellington the "shortlist" comprises Telecom and Teamtalk subsidiary Citylink.

Crown Fibre had not been expected to announce any of its preferred partners until late October and IDC Research analyst Rosie Spragg said it was not clear whether yesterday's announcement was designed purely to get the ball rolling, or whether it was also timed to send a signal to the remaining bidders, especially Telecom, to "sharpen their pencils". Mr Allen denied that but said it might be a "by-product".

Ms Spragg said the announcement showed the Government believed it had other options and the three regions were probably lost to Telecom regardless of its future actions. "Crown Fibre has sent a pretty clear signal they think the lines companies are capable, so it will be hard to justify going back on that. The question for Telecom is how far are they from what the Government wants, and can they ever get close, or can they just not make the commercials of it work?"

Communications Minister Steven Joyce said the Government would not regulate to prevent Telecom's network arm Chorus from competing against the UFB network in the central North Island, Whangarei and Timaru if the lines' company contracts were confirmed.

Mr Allen said he did not see a problem if the Government invested alongside Chorus in building the UFB network in some regions, while Chorus competed against the UFB network in areas where it had lost out.

Wellington technology lawyer Michael Wigley forecast yesterday's announcement was not the end game. "Even the three lines company bidders can fit within some sort of structure that involves Telecom. For Telecom, it's a relatively small battle in a war."Vector chief executive Simon Mackenzie believed the Government had recognised the benefit of the "regional model" and local ownership of fibre companies. Vector is shortlisted alongside Telecom to build the network in Auckland.

- © Fairfax NZ News