August 2, 2010 / 4:36 AM / 9 years ago

UPDATE 1-NZ Telecom proposes demerger in broadband plan

* NZ Telecom puts broadband plan to govt, proposes split

* Telecom would demerge network business, detail confidential

WELLINGTON, Aug 2 (Reuters) - Telecom Corp of New Zealand TEL.NZ said on Monday it has put a plan to the government to build a national broadband network which involves splitting the company in two.

Telecom said it had submitted a confidential proposal to the government on plans to supply high-speed Internet via fibre-optic cables to the majority of New Zealand homes, which involved demerging the firm into a network arm and wholesale/retail phone company.

“This would be a significant event for our company and would radically transform the telecommunications sector in New Zealand,” Chief Executive Paul Reynolds said in a statement.

The government is contributing NZ$1.5 billion ($1.09 billion) to try to get fibre-optic broadband to 75 percent of New Zealand homes by 2019, with private providers expected to top up the rest, with the final cost put at as much as NZ$7.5 billion.

The government has put out 33 regional tenders for the build and it has said that network builders cannot also be retail providers of phone services, which would exclude the former state owned monopoly.

In May, Telecom said it was investigating the merits of splitting itself in order to take part in the government plan, which analysts have said risks undermining it by resulting in Telecom’s legacy copper phone network competing against a modern, state-sponsered rival. [ID:nSGE64M02R]

Shares in Telecom, New Zealand’s second-largest listed company, last traded 3 cents or 1.5 percent higher at NZ$2.02.

So far this year the stock has fallen 20 percent compared with a 5.9 percent fall for the benchmark NZX50 index .NZ50.

Telecom had a critical role to play in the government’s plan being a success, Reynolds said.

“I firmly believe that Telecom can deliver more fibre, faster and more efficiently than any other partner while avoiding duplication or waste,” Reynolds said.

Any proposal to demerge the company would require the approval of 75 percent of shareholders.

Telecom’s market value is about NZ$3.9 billion, with its network arm, Chorus, expected to account for between half and two-thirds of that.

Telecom was forced by the government in 2006 to split its network, wholesale and retail arms into separate operating companies to provide services to smaller rivals on the same terms and prices as it does to Telecom’s retail business.

In Australia, the dominant phone company Telstra Corp (TLS.AX) struck a $10 billion deal with the government to sell its fixed line phone network into a similar plan for a National Broadband Network. [ID:nSGE65J02V] ($1=NZ$1.37) (Reporting by Adrian Bathgate; Editing by Ed Davies)

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