Vector bids for Auckland fibre

Fibre networks should deliver ultra-fast broadband to most New Zealanders. Photo / Supplied

Vector's entry into negotiations for a lucrative leg of the Government's broadband scheme has shaken assumptions Telecom would dominate the building of the ultra-fast network.

Crown Fibre Holdings announced yesterday it would commence priority negotiations with Vector to lay fibre in Auckland.

This does not mean Telecom is out of the running and Crown Fibre Holdings said it would continue to bargain with the telco.

CFH chairman Simon Allen said Auckland was an important market and having two competing bidders was positive.

The ultra-fast broadband scheme hopes to offer 75 per cent of New Zealand internet at 100 megabits per second by 2021.

Telecom was the frontrunner to build the network in 25 regions nationwide after moving into priority negotiations in December, but is now neck and neck with Vector in the fight for Auckland.

Yesterday's announcement debunks speculation an agreement between Telecom and the Government was imminent.

On Wednesday, Communications Minister Steven Joyce revealed the legal path Telecom would need to take if it won the broadband contracts and split itself in two.

As part of its broadband bid, Telecom proposed to separate its retail branch from its network builder, Chorus.

Joyce's release added weight to notions that Telecom was a step closer to striking a deal with the Government.

"When Joyce released [the additional legislation], people were thinking Telecom was in a strong position and had been in backroom discussions around separation, everything seemed positive. I suppose this is just a warning shot across the bow," First NZ Capital's Greg Main said.

Telecom's share price rose slightly in December but was knocked back a little by yesterday's announcement, Main said. It closed yesterday closed unchanged at $2.23 and Vector was up 4c at $2.54.

Auckland is the keystone of Telecom's broadband bid and the company confirmed it would not work with the Government in other parts of the country if it lost Auckland to Vector.

"When we moved up to preferred negotiations status in December, that was on the basis for 82 per cent of UFB and that's what we're negotiating on - everywhere apart from the two [regions] that have already [been signed off]," said Telecom's corporate communications manager, Ian Bonnar.

"I think it would be very hard to justify splitting the company [without Auckland]. Auckland's such a huge part of it, it would be hard to split and then just be a regional supplier."

Joyce's office confirmed that Telecom would need to split to take part in the broadband build, regardless of whether it won the Auckland contract.

"Separation is not hinged on Auckland, but on involvement with the UFB," a spokesperson for Joyce said.

Crown Fibre Holdings would not reveal whether Telecom's all-or-nothing position would influence negotiations.