'Profitable' 2degrees secures $165m BNZ overdraft, reveals 4G launch window

2degrees has secured a $165 million credit facility with BNZ, and reached agreement with Huawei to deploy 4G network in early 2014.

Acting chief executive Stewart Sherriff tells NBR ONLINE part of the money will be used to repay a $US100 million line in vendor financing with network partner Huawei, opened in February  2011.

The $45 million or so remaining, plus money from operations, would be used for expanding and adding capacity to 2degrees' 3G network, and the pending 4G network upgrade.

Mr Sherriff tells NBR because 2degrees' network, built by Huawei, the 4G upgrade would be relatively cheap and easy, involving a network card being slotted into each cellsite and a simple software upgrade. He would not detail 4G rollout areas or a specific time table.

Profitable
The acting CEO said 2degrees, which has made heavy losses, is now profitable on an ebitda basis (earnings before interest, taxes, depreciation and amortization), and has been for the past three quarters. 2degrees' most recent Companies Office filing - on June 28, 2012 for the calendar 2011 year, saw it report an $82 million loss on $185 million revenue. [LATEST: Operating earnings turn positive for 2degrees in third year]

Speculation put to rest
Mr Sherriff describes the BNZ deal as a milestone for 2degrees.

"I think it puts to rest some of the speculation that perhaps weren’t here for the long haul and didn’t have deep enough pockets to actually get there," he tells NBR.

The company is now fully funded and would require no more contributions from shareholders, Mr Sherriff says - a statement that will come as a relief to minority investor the Hautaki Trust, which has seen its stake diluted as it has been unable to buy into new rights issues.

BNZ Head of Institutional Banking Paul Blair says in statement, "The decision to finance 2degrees was based on the strength of the business. 2degrees has made a great start, proving there is room for a third mobile operator. Having reviewed their future plans we see a growing business that we want to be a part of."

2degrees hasn't hasn't updated on customer numbers since August last year, when it claimed one million active connections (100,000 of which were on contract) - giving it just shy of 20% market share.

Mr Sherrif had no update on that number today, and says it is not his point of focus. The acting CEO says customer connection numbers are pointless in a world of multiple machines (like burglar alarms and power meters) with SIM cards. He prefers to focus on mobile market revenue share - which he puts at around 12%.

2degrees secured more 4G-friendly spectrum when TelstraClear offloaded some of its holdings to smooth Commerce Commission approval for its takeover by Vodafone.

Mr Sherrif said the company's existing 1800MHz and 2100MHz spectrum was sufficient for 4G launch in early 2014. Long term, it would need 700MHz, so would compete against Telecom and Vodafone in the pending government spectrum auction.

2degrees CEO Eric Hertz and his wife Kathy were killed in a light plane crash on March 31. Mr Sherriff - who is also chairman of 2degrees, and a vice president with 2degrees' majority shareholder, US-based Trilogy International Partners, says an international search is on for a new chief executive.

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