New Zealand - Telecom New Zealands Proposal for Structural Separation

Synopsis

As foreshadowed a month ago Telecom has finally put forward its proposal to government-owned Crown Fibre Holdings regarding the conditions under which it will be prepared to structurally separate. Obviously any such deal would still require (75%) shareholder approval.

While there are very few details, in essence the proposal is to structurally separate the company, through a demerger into two companies, which would create Chorus2 as a new and entirely standalone company.

Furthermore, it is proposed to integrate the Ultra-fast Broadband initiative with the Rural Broadband Initiative. Integrating these two initiatives would allow for the extension of the reach of Ultra-fast Broadband into rural areas, well beyond the 75% coverage area. The economies of scale that can be achieved through this proposal and through utilising existing assets will mean rural New Zealand can more quickly obtain the benefit that fibre will bring. BuddeComm supports this suggestion as, in the words of Telecom, ‘the rural sector has both the need and the applications available to be able to take advantage of the benefits of fibre-based telecommunications’.

The key to a successful path forward from here is a careful balancing of interests between those of Telecom and the rest of the industry. The participation of Telecom in the UFB is very welcome but, at the same time, it will add to the complexity of the process.

This Investors Research Note will also include comments on the partial sale of Telecom’s Australian subsidiary AAPT.