Government broadband initiative expected to cost telco $168 million
Telecom's stock price hit an all-time low yesterday after it told the market that its share of the Government's new rural broadband initiative would cost it $168 million over three years.
The shares closed down 4c at $2.17, a drop which comes on top of fallout from outages on Telecom's XT mobile network.
The Government says a Telecommunications Development Levy (TDL) will help fund the rollout of the rural broadband initiative, bringing broadband connectivity to 97 per cent of New Zealand.
The rural broadband initiative is expected to cost around $300 million over three years, $48 million will be funded by the Government and the rest will be funded by the industry through the TDL.
Of the $252 million to be funded, Telecom will have to pay $168 million. The rest will be covered by companies such as Vodafone and Whoosh, 2degrees and TelstraClear
TDL is part of the Government's reform of the telecommunications services obligation (TSO) levy. The TSO has been controversial and Vodafone has raised questions about how the levy was calculated.
Under the TSO, Telecom was obliged to provide local residential telephone services to customers who otherwise may not have access to such services at affordable prices.
The main difference between the TDL and the TSO is that now Telecom will have to pay the Government its share of the levy rather than effectively paying itself.
Telecom advised the market yesterday that these changes would cut $56 million a year from earnings for the three years from 2011 to 2013.
Telecom's statement got an immediate reaction and its shares dropped to an all-time low by the close of trading yesterday. The previous low of $2.19 was hit at the start of this month at the height of the XT network crash.
Telecom spokesman Mark Watts yesterday confirmed the broadband plans would "significantly impact" the company's bottom line but said the telco was committed to rural New Zealand.
Watts said Telecom had "always put its money where its mouth is" and had over the years heavily invested in rural New Zealand.
"If you pick any town worthy of a name we are taking fibre to the home. It's time to see what the other providers are going to do," Watts said.
Vodafone strongly campaigned for the TSO levy to be reformed stating it did not include new technologies such as mobile into its calculations. The company has tried to recoup historic TSO levy costs from Telecom but lost its appeal in December for levy payment in the year ending June 30, 2008.
Vodafone spokesman Paul Brislen said it overpaid Telecom and would continue its fight to regain "gifted" money.
Brislen said the company was glad to "see the back" of the TSO and was delighted with the Government's new plans for rural telecommunications. Brislen said Vodafone was committed to rural broadband services but was against any regulatory framework where a commercial solution was possible.
Brislen said the levy was originally set up as a subsidy to compensate Telecom for the use of its services and to ensure rural New Zealand received further technological advancements.
But Vodafone claims that until yesterday rural New Zealand had been left in the dark with dial-up while the rest of the country enjoyed broadband.
"We don't believe Telecom lost a penny [through the TSO]. This was more an economic model where the whole industry subsidised these commercially non-visible customers. There is supposed to be a list of these - some 50,000-60,000 customers - but no one has ever seen it. We are already providing 70 per cent of these customers with mobile coverage and we don't see them as non-commercially viable.
"It's been a complete nightmare. The more customers Vodafone took off Telecom, the more we had to pay them in the levy."
WEB ON THE FARM
* Cabinet has approved a plan to roll out high-speed broadband services to rural New Zealanders.
* It will cost $300 million. The Government is paying $48 million and the rest will be funded by telecommunications companies.
* Telecom will pay $168 million over three years.