Giants might fight over fibre coverage

Changes to the rules surrounding the Government's rural broadband initiative (RBI) could cause a battle for market supremacy between Telecom and Auckland-based energy company Vector.

Communications and Information Technology Minister Stephen Joyce announced last week that he was now seeking national coverage proposals for the RBI - rather than region-by-region proposals.

With Telecom having made all the right moves lately about structural separation, and saying it was ready to work with the minister, the inference in Mr Joyce's statement was that Telecom had already received his approval.

"It's clear that some national infrastructure companies will be able to meet the Government's rural broadband objectives, along with having the financial backing to guarantee their proposal, across the whole country.

"It was also evident that while regional bidders were able to make a significant impact on broadband coverage, they would fall short of achieving the Government's targets for coverage," he said.

Regional infrastructure companies were being "encouraged" to partner with national bidders.

To help that happen, the minister was extending the deadline for submissions by six weeks.

Telecom has made it clear that it regards the duplication of its already existing network as a waste of money and resources and chief executive Paul Reynolds has been advocating that his company was in a position to meet the Government's demands.

However, Vector, which heads the New Zealand Regional Fibre Group, also made it clear it would continue working with group members to participate in the RBI.

Vector chief executive Simon Mackenzie said Vector had supported the RBI from the first day and believed it was an important extension to the Government's ultrafast broadband project which concentrated on urban areas.

The speed and reliability of a fibre network would improve connectivity to rural communities, delivering fibre to rural schools.

Through the availability of fibre backhaul, high-speed wireless and mobile broadband would be available for rural communities, farms and homes, at speeds far exceeding the experience to rural customers on copper.

"Fibre networks must be put in place to cater for the demand that will exist in the next five to 10 years.

"Rural communities stand to benefit from these new networks and solutions providing productivity and efficiency gains for rural and urban New Zealand. This is just the start."

Vector was ready to begin building the Government's fibre network now, Mr Mackenzie said.

The regional fibre group includes Aurora Energy, the Dunedin City Council-owned electricity lines business, operating in Dunedin, coastal Otago and Central Otago.

Forsyth Barr broker Tony Conroy said Vector seemed to be only targeting Auckland and Wellington.

"In my view, the pressure is on for the regional participants to get together, but the latest announcement by Mr Joyce does indicate that Telecom has the inside running.

"If Telecom wins the fibre bid, I don't see Vector competing," he said.

Craigs Investment Partners broker Chris Timms said that from a practical point of view, the Government would prefer one strong operator to deal with on the rural fibre project rather than a piecemeal approach of alliances.

That would point to Telecom being the preferred provider but it hinged on how well Vector could get its alliance to work.

Having a range of energy and telecommunications companies under one banner could pose difficulties in decision-making, he said.

Vector was in a "reasonably strong" financial position to take on Telecom.

Results out on Friday last week showed Vector had earnings before interest, tax, depreciation and amortisation of $580 million, compared to Telecom's $1.76 billion.

Vector's operating cash flow was $130 million, compared to Telecom's $1.76 billion, and Vector's net debt plus equity ratio was 54% compared to Telecom's 47.5%.