* To build government’s national broadband network
* Shares surge to 16-month high
* Work to start this year (Recasts, adds detail, comment, updates market)
WELLINGTON, May 24(Reuters) - New Zealand’s dominant phone provider, Telecom Corp , said on Tuesday it expects to split its network operations into a separate company by the end of year as it starts building a government-sponsored broadband network, sending its shares to a near-16 month high.
Telecom said it expected to start work later in the year on rolling out the network in 24 regions, including the biggest city Auckland and the capital Wellington, the lower North Island and most of the South Island.
But the NZ$1 billion ($790 million) deal will force Telecom to demerge its network company, Chorus, into a separate listed entity, while it changes into a telecommunications retailer.
“We are absolutely clear that this is a positive deal for our shareholders, as well as delivering an effective fibre programme for New Zealand,” said Telecom Chief Executive Paul Reynolds.
The structural separation, which Telecom had put forward to satisfy competition concerns, still requires a law change and shareholder approval.
It will be done through a court approved scheme, which will leave Telecom shareholders with stakes in the two companies.
Under the agreement, the government’s Crown Fibre Holdings will invest NZ$929 million in Chorus through a mix of debt and equity as the broadband network is built.
The shares will be non-voting and no dividends will be paid before 2025, wile the debt will be unsecured and non-interest bearing.
Shares in Telecom, New Zealand’s second largest listed company sky gained as much as 7.1 percent to NZ$2.44, the highest since late January, before easing back a cent to NZ$2.43.
The government has promoted the plan to supply fast Internet to 75 percent of the country by 2019 through fibre-optic cables as a key policy to boost economic growth.
It is investing a total of NZ$1.5 billion to build the network, with network builders expected to foot the remainder of the bill, with the total cost estimated to be as much as NZ$7.5 billion.
Telecom did not gain the contract for the network in the country’s second biggest city Christchurch, but has said it will look to partner the successful tendered, which is owned by the local authority.
Contracts for rolling out the broadband network in the upper and central North Island and small areas of the South Island have already been awarded.
Telecom, a former state-owned company, will retain ownership of its mobile phone network but buy fixed-line services provided in the current copper-wire domestic network from Chorus. ($1 = 1.266 New Zealand Dollars) (Reporting by Adrian Bathgate)