Broadband plan to cost Telecom millions

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Telecom says its earnings guidance will be impacted by up to $56 million annually in the 2011, 2012 and 2013 financial years due to the Government's rural broadband plans.

The Government signed off plans with Cabinet yesterday, for the rollout of high speed broadband in rural areas and the reform of the Telecommunications Service Obligations (TSO).

Communications minister Steven Joyce confirmed that 97 per cent of households will have access to broadband with speeds of at least 5 megabits per second, with the remainder reaching at least 1 megabits per second.

A large focus of the plan will be to connect fibre directly to rural schools.

The initiative is expected to cost about $300m, and is being funded by a $48m government grant plus $252m from the new Telecommunications Development Levy.

“I want to stress that changes to the TSO levy would not affect the TSO obligation, which includes free local calls. The idea is not even on the table.  Likewise, there are no plans to further loosen the rules around foreign ownership of Telecom,” says Joyce.

In effect, this decision means that Telecom will lose its annual subsidy known as the TSO levy for servicing non-commercially viable customers in rural areas.

Telecom was allocated about $70 million a year under the previous levy, of which it paid $47m, and rival telco's paid $23m.

Under the new development levy, telco's will contribute about $50m a year for the next six years, and they will be able to apply to the fund to roll out rural broadband services

Shortly after the announcement Telcom's shares were down 3c to $2.18.

The Government expects to call for expression of interest during April and anticipates commencing allocating funding to successful bidders before the end of the year.

- © Fairfax NZ News