Vector considers UFB alternative

Vector may be ready to consider throwing its lot in with Chorus to secure a piece of the action from the Government's $1.35 billion ultrafast broadband investment initiative, according to a source who requested anonymity.

Chief executive Simon Mackenzie announced the company had proposed "potential alternative options around a fibre utility" at the same time as submitting a revised bid for the ultrafast broadband (UFB) contract in Auckland last Monday.

The source said the alternative proposition reflected there were different views within Vector about how best to proceed. Mr Mackenzie was very keen on the company competing against Chorus for the UFB contract in Auckland, but Vector's directors were aware raising money could be problematic as the company was already quite highly leveraged.

Vector is 75 per cent owned by an elected trust whose job is to distribute money to worthy causes and the UFB network would be a highly risky proposition if it was set up in competition to Telecom, the source said. "I don't think [the trust] is going to do anything that seriously challenges dividends or their control of the company."

Regulatory changes mean Vector could invest in electricity generation and water distribution, he said. "If you are on the board, you have got all these competing options. Is telecommunications the best way to go, or is it best to lease out your poles and get some money from that?"

Mr Mackenzie said he could not reveal the alternative proposal because of confidentiality requirements and wouldn't comment directly on the source's claims. Vector wanted to discuss the alternative proposal with Crown Fibre Holdings but Vector's board unanimously supported its revised bid for the UFB contract, he said.

He said Vector was not highly leveraged for a regulated utility business and the structure of the UFB scheme meant it would not need to invest in fibre until it had secured revenue streams from customers.

Vector had not moved beyond exploring options for investing in electricity generation. "We take a wide holistic view of all the infrastructure opportunities ... I wouldn't say you either do fibre or you do some other growth option.

"We are also pragmatic and we have told the Government and Crown Fibre that if they want to look at other models – and that includes Telecom – we are more than happy to talk about those kinds of models but that would have to be facilitated by Crown Fibre, because we are precluded from having discussions behind the bike sheds with Telecom or anyone like that.

Any partnership would have to be equitable.

Telecom chief executive Paul Reynolds said last week that competitors could vend assets into Chorus if it won the UFB contract and could also become investors in the network company.

The source said Mr Mackenzie and Vector chairman Michael Stiassny would probably be disappointed with that outcome. At the same time, Chorus had now recognised it would be politically unacceptable for it to be the Government's sole partner.

"[Chorus] is working out how it can partner with others."

The result was likely to be that the UFB contract would go to a "Chorus-centric coalition", which might necessitate another stage in the UFB tender process not currently envisaged by Crown Fibre or the Economic Development Ministry.

Speculation about Vector's new proposal arose as the New Zealand Regional Fibre Group – which represents all 19 lines companies and regional fibre companies bidding against Telecom for the UFB contract – announced its members had sharpened their proposals.

Its members agreed to form coalitions that would reduce from 18 to seven the number of local fibre companies that would need to be established if they won the UFB contract.

A source said Vector, Wellington's CityLink and Christchurch company Enable had resubmitted standalone bids for the three main centres while the group's 16 other members had agreed to coalesce to create another four local fibre companies.

Regional Fibre Group chief executive Vaughan Baker says the move would "make it easier for Crown Fibre to engage with us, but allows us to retain our regional focus". It would also address any concerns about the ability of smaller lines companies to deliver on the commitments they made.

A "common service organisation" that would be owned by the seven fibre companies or their members could establish common pricing for access to their networks if that was required by Crown Fibre Holdings, Mr Baker says.

That could make it easier for internet providers and phone companies to retail services over the UFB network, overcoming a potential shortcoming in the lines companies' bids.

"It is for Crown Fibre to determine whether a national price is required – I suspect that will be the result of negotiations if that is where they want to head."

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