Spark acquiring fibre and RBI telco TeamTalk

Spark has offered an 80 cents per share purchase price for struggling small telco TeamTalk, which provides a Wi-Fi network throughout Wellington, a fibre network across six cities, and resells RBI services.

New Zealand telecommunications provider Spark has announced that it will fully acquire small carrier TeamTalk in an effort to expand its provision of internet services across the country.

TeamTalk provides digital mobile radio services, as well as metro fibre services under its brand CityLink and rural internet services under its brand Farmside.

Under Farmside, TeamTalk is one of the largest resellers of the New Zealand government's Rural Broadband Initiative (RBI), and uses satellite, ADSL, and wireless technology to provide internet connectivity in regional areas. It also has a contact centre in Timaru with over 70 staff members.

If the acquisition proceeds, TeamTalk's CityLink brand would also provide Spark with a free Wi-Fi service throughout Wellington, as well as fibre, dark fibre, and custom networks within six cities across the country.

The acquisition would occur via an offer price of 80 cents per share -- 78 percent higher than their worth at closing on February 3.

According to Spark managing director Simon Moutter, TeamTalk will enable growth in revenue for Spark -- despite having declined in earnings and profit over the last few years.

"TeamTalk is a small operator in the New Zealand telco market. Its financial performance has declined over the last few years, with a number of profit downgrades, and it faces significant re-investment requirements across its businesses," Moutter said.

"Given TeamTalk's debt position (last reported bank debt was NZ$33.6 million with a maturity date of September 2017), and small market capitalisation (approximately NZ$12.8 million), its ability to fund this investment is constrained. This has been reflected in TeamTalk's decision not to pay a final dividend to shareholders in FY16.

"Spark, as a digital services company with its own extensive networks, distribution channels, and customer base, has the ability to provide a more positive pathway forward for TeamTalk customers and staff."

Spark has requested that it complete due diligence on TeamTalk before proceeding with the acquisition.

In December, Spark similarly acquired the remaining 50 percent of fibre construction company Connect 8, which it originally formed with Vocus Communications in February 2015, aiding it in its goal of establishing a full-fibre network throughout Wellington and Auckland.

"Spark already connects cities, exchanges, and datacentres around New Zealand to fibre," Spark chief operating officer Mark Beder said last year.

"Given our extensive existing fibre footprint and our goals to be the market leader in data and digital services, full ownership of Connect 8 makes strategic sense. It gives us even more flexibility, capacity, and control over our fibre construction and delivery."

Intent on providing high-speed broadband to consumers across New Zealand, Spark has been trialling its "street in a week" fibre installation program in partnership with Chorus since December.

Beginning December 12, Spark and Chorus started offering Ultra-Fast Broadband (UFB) fibre upgrades from legacy copper services to 400 premises in Whakatane.

"By concentrating teams and resources within a small geographic area for the week of the trial, Chorus will be able to deliver an accelerated installation process as teams work collaboratively," Spark said in November.

Spark also began offering gigabit-speed broadband in December.

Spark reported a NZ$370 million net profit for the 2015-16 financial year, attributed to increasing mobile and cloud users. Earnings before interest, tax, depreciation, and amortisation (EBITDA) came to NZ$986 million, up 2.5 percent from the NZ$962 million reported for the previous financial year.

The telecommunications provider announced a "strategic transformation" from a traditional telco towards a digital services provider last year, and made changes to its executive teams in April.

As part of transformation, its Spark Connect business was split in two to form Spark Connect, which focuses on connectivity, and Spark Platforms, which is to "design, develop, and operate best-practice digital platforms and the core products enabled by them", according to Moutter.