In a shock move, Telecom and Vodafone revealed today they have submitted a a joint bid for the government's $300 million rural broadband initiative (RBI) tender.
At the same time, TelstraClear chief executive Allan Freeth released a statement sayin
In a shock move, Telecom and Vodafone revealed today they have submitted a a joint bid for the government's $300 million rural broadband initiative (RBI) tender.
At the same time, TelstraClear chief executive Allan Freeth released a statement saying he supported the joint Telecom-Vodafone bid. The Regional Fibre Group, an alliance dominated by power line companies, released details of its rival bid.
Suddenly, the ley of the land became starkly obvious: it's phone companies vs lines companies.
With the urban fibre project at an unfathomable point, and much delayed, the government may well be tempted to go for the easy rural win being offered by Telecom and Vodafone.
Wholesale network
The pair have proposed a wholesale or "open access" network.
The fibre side would be run by Telecom's Chorus division, connecting schools, hospitals and rural exchanges and cabinets. Layer 1 or dark fibre (where a retail player adds its own electronics) would also be made available to larger ISPs.
The Chorus fibre would also feed 154 cell towers, operated by Vodafone.
Chorus chief executive Mark Ratcliffe told NBR that any ISP could connect to a Telecom rural cabinet or rural exchange under the scheme, then offer its own retail service through the network.
Similarly, any mobile phone company could install its own gear on Vodafone's 154 open-access towers. That means the same celltowers will house radio transmitters for both Telecom XT and 2degrees (once High Court foes over transmission interference). If it comes on board as a retail customer, 2degrees could be there too (this afternoon the new mobile operator release an impenetrable, buck-each-way press release).
Vodafone has already said its towers will support HSPA+ and be LTE (or "4G") ready.
So-called Yagi antenna on rural homes would boost the cellular broadband signal in outer-lying areas.
Same price for urban and rural broadband - probably
The pair refused to reveal financial details of their bid.
But Vodafone chief executive Russell Stanners did say rural customers should be able to access broadband for the same price as urban customers.
Chorus' Mr Ratcliffe told NBR that he expected rural customers would pay the same as urban customers for landline and mobile broadband - but that ultimately it would be up to retailers. Some degree of wholesale price regulation was likely through the MED.
A money maker?
Asked if Chorus saw the venture as profit-making, Mr Ratcliffe said his division was not looking to earning anything on the elements enterprise that involved direct government grants, but that there was potential for new revenue in areas such as connecting retail partners to cabinets.
Can Telecom escape $56 million earnings hit?
But whether Chorus makes any money on the deal, the key point for shareholders is that it could avoid a big loss of rural-related earnings.
Telecom has previously warned that the loss of the old rural funding regime (the TSO; see below) would leave a $56 million hole in its ebitda over the next three financial years. Now, it's tantalisingly close to dodging the earnings hit.
One the face of it, a Telecom-Vodafone combined bid looks collusive and anti-competitive. But given the non-commercial nature of the rural broadband project, it could have a good shot of getting through.
A less commercial environment
While beleaguered Crown Fibre Holdings is running the government's $1.35 billion urban broadband tender, the rural RFPs are being wrangled by the Ministry of Economic Development (MED).
And while the urban project aims to for the Crown to co-invest in Local Fibre Companies geared to make a profit, the rural project will receive direct government subsidies (as opposed to Crown investment that must be paid back).
Recently, Communications Minister Steven Joyce changed the rules of the rural tender, narrowing the RFP to only national bids only.
As Telecom and Vodafone announced their grand alliance this morning, Vodafone's Mr Stanners said the new arrangement gave taxpayers the best bang for buck.
Telecom chief executive Paul Reynolds weighed in with, "This solution sees New Zealand’s two largest telecommunications providers combining their extensive resources and skills to bring the benefits of high speed broadband to rural communities as quickly as possible."
With the urban fibre project at an unfathomable point, and much delayed, the government may well be tempted to go for the easy rural win being offered by Telecom and Vodafone.
New regime
The rural broadband initiative (RBI) - a contestable fund that replaces the old TSO fund that used to go directly to Telecom, to subsidise it for covering so-called "commercially non-viable" rural customers - aims to ensure 93% of rural schools are connected to fibre, enabling speeds of at least 100Mbit/s, with the remaining 7% achieving speeds of at least 10Mbps.
Under the RBI, more than 80% of rural businesses and households will have access to broadband with speeds of at least 5Mbit/s, the government promises, with the remainder a not-so-flash 1Mbit/s.
While the UFB is being decided by Crown Fibre Holdings, the single rural winner will arrive via a Ministry of Economic Development (MED) recommendation.
Communications minister Steven Joyce said the MED would begin negotiations with shortlisted RBI partners next month.
Telecom's shares (NZX: TEL) shares were up 1 cent to $1.7 in late trading.
