Fibre bid costing Telecom $2m a month

Fibre optic cabling. Photo / NZ Herald

Bidding for a role in the Government's ultra-fast broadband scheme is costing Telecom $2 million a month.

Speaking at Telecom's quarterly results briefing last Friday chief financial officer Nick Olson said that during the three months to the end of September the company had racked up $6 million of costs associated with the broadband initiative.

He said Telecom was sinking $2 million a month into the bid. The Government is in the process of negotiating with infrastructure partners to assist in running out fibre cable to the doorsteps of 70 per cent of homes, businesses, hospitals and schools.

An announcement is expected from the Government on the success of negotiations with Timaru-based Alpine Energy, the Central North Island Fibre Consortium covering urban areas in the Waikato, Bay of Plenty and Taranaki, and Whangarei's Northpower.

A condition of Telecom's participation in the broadband scheme would be to spin off its network assets into a separate company.

Chief executive Paul Reynolds said that, given the need to separate the business, the costs incurred by Telecom would not be typical of bidders in the ultra-fast broadband scheme.

"It's made up by investment bankers' costs, legal costs, advisers' costs. It's not just bidding for the ultra-fast broadband, it's planning to demerge the company," he said. Reynolds said with shares and debt listed in multiple markets around the world Telecom had to investigate the legal and procedural ramifications of the demerger.

"Demerging the company is a gigantic procedure. It's never been done by any telco ever, so we're writing the procedural book for this and that's what incurs that level of costs."

Telecom reported adjusted net earnings of $83 million, down 49 per cent, and a revenue fall of 3 per cent to $1.3 billion. Cost-cutting brought expenses down 4 per cent to $873 million.

The largest cost impact in the quarter, $16 million, came from the regulatory changes to the provision of basic telecommunication services to hard-to-reach customers.

Telecom estimates the damage caused by the Christchurch earthquake to be in the region of $3 million for the period ending September.

On the plus side it gained $8 million from "supplier settlements" on top of the $27 million recognised in the last financial year "in relation to various resolutions and settlements reached with a supplier", widely assumed to be Alcatel-Lucent for the XT outages.