Telecom NZ loses out in first NZ broadband bidding war

The New Zealand Government agency charged with building the country’s equivalent of the National Broadband Network (NBN) has announced the first three companies to build aspects of the network, but has left incumbent Telecom New Zealand out of the loop.

The ASX-listed monopoly network (ASX:TEL) issued a trading halt on the New Zealand Exchange at 10.28am New Zealand time, pending the result of Crown Fibre Holdings’ (CFH) announcement. However, ten minutes later, when the trading halt lifted, the telco revealed it had missed out on the first opportunities to build the network.

Alpine Energy, the Central North Island Fibre Consortium and Northpower were announced to have received the first three contracts, covering eight of the 33 candidate areas in the network.

"These three parties have displayed the best proposals including a combination of access prices, funding provisions, industry experience and financial backing," CFH chairman, Simon Allen, said in a statement released by Telecom to the ADX.

"On the basis that CFH successfully concludes binding offers with these parties, the Government and its partners will be bringing fibre to a significant part of New Zealand, which marks a real milestone for this initiative.”

Telecom is among the 14 companies shortlisted for the build of the project, three of which have now been selected to build the network in eight candidate areas. The telco noted in an ASX statement that it was the only shortlisted company to submit a proposal for all 33 areas expected to be built as part of the network, with the only other equivalent submission, by Canada-based Axia NetMedia Corporation, not chosen on the shortlist due to elements of the submission not part of the government’s network policy.

In its proposal, Telecom offered a co-investment with Crown Fibre Holdings for building the network in all candidate areas, submission to structural separation in July 2011, extension of the existing rural broadband initiative, and support for regulatory reform and legislative change in the telco sector. The telco said in an ASX statement that it was considering the announcement of the three selected companies in detail, but continues to believe it had the better overall offer.

“We recognise that our bid is more complicated than those of other bidders, and that Crown Fibre Holdings does not have a mandate in the areas of RBI, regulatory reform and legislative change,” chief executive, Paul Reynolds, said in a statement.

“We continue to believe that a national solution is the most efficient and effective way of delivering fibre to New Zealand while avoiding duplication and waste. We stand ready to work closely with the government to make sure that we can, in the spirit of partnership, make the most of this once-in-a-generation opportunity for New Zealand,” he said.

While the results have striking similarities, Telecom New Zealand’s current position differs markedly to Telstra’s equivalent experiences in recent times. The Australian incumbent opposed separation and submitted a non-compliant bid to build Labor’s $4.7 billion National Broadband Network in 2008, in hopes of maintaining its monopoly position. The telco, however, has since recognised separation of some form as an inevitability and become a major part of the $43 billion NBN’s rollout in Melbourne.

Crown Fibre Holdings will continue negotiations with the other shortlisted companies, but has not set a date for when those companies will receive notification. However it is expected the three selected companies, along with others eventually selected, will begin the build by the end of the year.

"All shortlisted parties remain important contenders for future negotiations of binding agreements. CFH is open to either a Telecom, New Zealand Regional Fibre Group solution, or some form of combination for the balance of the UFB project," Allen said.

New Zealand Minister for Communications and Information Technology, Steven Joyce, commended the step, but urged potential contenders to try harder in their submissions.

“Throughout the UFB process I have been urging potential partners for the Crown to put their best feet forward,” he said. “The government will partner with those groups that will deliver the best value for New Zealand taxpayers.”

New Zealand’s $1.5 billion Ultra-fast Broadband (UFB) initiative, similarly to the NBN, will see homes receive fibre-to-the-home (FTTH) connections capable of speeds from 100 megabits per second (Mbps) downstream and 50Mbps upstream connections on a Layer 2 wholesale network. However, the government has set a a target of covering 75 per cent of the population in the next ten years.

The remainder will receive a sliding scale of between 10Mbps and 1Mbps depending on how regional they are.

The project saw a call for submissions from telcos and consortiums in October last year, with refined proposals submitted in June.

Copyright © 2010 IDG Communications, Inc.

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