Spark, Vodafone NZ, 2degrees offer NZ$75m for RBI2 and blackspots

New Zealand's three biggest mobile telcos have banded together to offer hundreds of millions in total toward RBI2 and the mobile blackspots program in their joint proposal submitted to the NZ government.
Written by Corinne Reichert, Contributor

New Zealand mobile telecommunications carriers Spark, Vodafone NZ, and 2degrees have submitted a joint proposal on the extension of the government's Rural Broadband Initiative (RBI2) and mobile blackspots program, offering an infrastructure capital contribution of NZ$75 million.

In addition, the three telcos would invest hundreds of millions of dollars on opex throughout the life of the projects, as well as contributing mobile broadband spectrum. The government is itself contributing NZ$150 million through its Telecommunications Development Levy.

According to Spark MD Simon Moutter, working alongside Vodafone NZ and 2degrees was "the only economically viable way" to ensure the rollout of high-speed mobile broadband infrastructure to regional and rural areas.

Under their proposal, 500 new cell sites would be delivered to increase landmass coverage by 25 percent, including over 1,200km along state highways.

"Rural New Zealand is a key driver of our country's economic growth and productivity, and for these sectors to remain competitive, they need fast broadband and mobile coverage -- not just in offices, but on farms, in schools, and on the roads," Vodafone NZ CEO Russell Stanners added.

"The combination of the government's RBI funding and this investment by the three mobile network operators presents a once-in-a-generation opportunity to deliver both competitive ultra-fast broadband and world-class 4G mobile infrastructure to areas of New Zealand that today have neither."

New Zealand Communications Minister Amy Adams in October put out a request for proposals (RFP) for the projects, saying the RBI extension would provide 20Mbps broadband speeds while the blackspots program would enable mobile coverage for state highways and tourism destinations.

"Around 293,000 rural New Zealanders are accessing better broadband under the first phase of our RBI program. This next stage sees an investment of NZ$150 million to extend coverage to even more New Zealanders," Adams said at the time.

"My aim is to provide high-speed broadband to the greatest number of under-served rural New Zealanders within the funding available, and give regional communities access to high-speed broadband. We also want to improve the reach of mobile services to support safety on state highways and enhance the visitor experience for tourists."

Highways will be provided with a minimum of 3G services, with 4G networks "preferred" for popular tourist areas, the government said last year. Contracts are expected to be announced by June 2017.

The New Zealand government is targeting 99 percent of the population with 50Mbps minimum broadband speeds by 2020, with the remaining 1 percent to have speeds of at least 10Mbps.

The RBI will provide fixed-line broadband for 20 percent of the New Zealand population, with the initial RBI project 100 percent complete as of June 2016, having enhanced and extended fixed-line coverage to approximately 110,000 premises for a total cost of NZ$282 million.

The remaining 80 percent of the population will be covered by the Ultra-Fast Broadband (UFB) project, which already provides speeds of up to 1Gbps using fibre to the premises.

Spark moves on TeamTalk

Also on Tuesday, Spark affirmed its 80-cent-per-share acquisition offer for smaller carrier TeamTalk, saying it has also waived the 90 percent shareholder acceptance requirement; as a result, if over 50 percent of TeamTalk's shareholders approve, the acquisition will take place.

However, Spark said that its offer would lapse should TeamTalk's shareholders vote in favour of selling off a majority of its subsidiary Farmside to Vodafone NZ. Spark said it would then "seek alternative options" to attain a fibre network throughout the Wellington CBD.

TeamTalk had last month urged its shareholders to reject Spark's "predatory" and "exploitative" takeover offer, saying it obtained an independent assessment from Grant Samuel showing the acquisition undervalues the company's value by between NZ$22.8 million and NZ$39.6 million.

According to TeamTalk, its current business plan, which is being led by a new CEO, CFO, and transformation officer, will lead to "strong profitable growth".

Just a day later, TeamTalk announced that it was encouraging an offer from Vodafone NZ to acquire 70 percent of Farmside, the rural broadband and satellite arm of small carrier TeamTalk, for NZ$10 million in cash as well as the option to acquire the remaining 30 percent for NZ$3 million.

Vodafone NZ already has a mobile virtual network operator (MVNO) deal with Farmside.

Spark again refuted TeamTalk's independent assessor report on Tuesday.

"As New Zealand's largest digital services company, Spark has a strong insight into industry dynamics, and what the future shape of communication networks may be. We do not believe Grant Samuel's report adequately accounts for the market risks to the CityLink and TeamTalk mobile radio businesses over coming years," Spark CFO David Chalmers said.

"Spark needs to be disciplined in how we invest our shareholders' capital. We will not pay a significant premium for an unsubstantiated forecast that is light on detail and in our view is unlikely to be achieved."

Spark's statement came a day after the New Zealand Commerce Commission released its statement of preliminary issues on the acquisition, saying it intends to look into conglomerate and vertical merger issues.

TeamTalk provides digital mobile radio services, including point-to-point digital microwave radio services, and holds more than 90 percent of the trunked radio market, with 450 high sites and spectrum.

Through its brand CityLink -- the main asset being targeted by Spark's acquisition proposal -- TeamTalk has a 270km fibre network throughout streets and 70km in buildings across Auckland and Wellington; a free Wi-Fi service in Wellington, which is subsidised by Wellington City Council; owns datacentres in Wellington and Auckland under the brand SiteNet and rents out rack space to customers; provides peering exchange services through ExchangeNET, which has exchanges in Auckland, Wellington, Christchurch, Hamilton, and Dunedin; and provides custom networks within six cities across the country.

As well as its MVNO deal with Vodafone NZ, Farmside also offers rural broadband services, and is one of the largest resellers of the RBI. It uses satellite, ADSL, and wireless technology to provide internet connectivity in regional areas, and has a contact centre in Timaru with over 70 staff members.

The regulator will accept submissions on the acquisition until April 14, and make a decision by May 22; meanwhile, TeamTalk shareholders are due to vote on the Vodafone-Farmside acquisition on April 12.

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