Rural contracts boost Telecom

Vodafone CEO Russell Stanners. Photo / Greg Bowker

Telecom shares soared yesterday after it won rural broadband contracts, even though the telco doesn't expect to make money from the deal in the short term.

The Government announced yesterday it will partner with both Telecom and Vodafone in the rural broadband initiative (RBI), which hopes to offer over 80 per cent of rural households internet speeds of at least five megabits per second over the next six years.

Within that time, 93 per cent of rural schools will also get internet speeds of 100 megabits per second.

Following the news, Telecom shares climbed almost 5 per cent and closed yesterday at $2.15.5.

The broadband build is expected to cost up to $500 million and will be funded through a $285 million industry levy, with Telecom and Vodafone footing the remainder of the bill.

However, Vodafone chief executive Russell Stanners said returns were unlikely in the first years of the RBI.

"It's a 10-year view and business case so I don't think in the early years we'd make any money at all," he said.

In the scheme, Telecom will lay 3100km of fibre cables throughout rural New Zealand and Vodafone will build 154 cell towers providing both fixed, wireless and mobile internet.

As well as this, Telecom will upgrade its copper internet lines, giving 30 per cent of rural internet users speeds of up to 20 megabits per second.

The build is planned to begin on July 1.

Federated Farmers president Don Nicolson said faster broadband would help stimulate the rural economy.

"Broadband isn't just about reducing isolation but enabling economic development to take root in the provinces rather than just the cities."

While yesterday's news was an important step in bringing rural internet up to speed, the farmer lobby wanted more information on what the scheme will look like when completed.

"On the face of it, the announcement is a positive step forward but we've yet to get the full picture on what the contracts mean in practice. For example, what will be done for those who seem to have missed out on today's announcement? We also need to learn a lot more about peak download and upload speeds, coverage and, of course, pricing," he said.

In a press briefing , Communications Minister Steven Joyce said details would be released in "due course".

Federated Farmers said it was also writing to councils asking them to allow higher cell towers, which offer better wireless coverage.

Vodafone's Steve Rieger said most of the 154 new towers would be around 25m tall, with a handful needing to be higher. Existing rural cell towers average around 20m, he said.

Joyce stressed the new towers would be open-access and built specifically to co-locate (house equipment from other operators), allowing them to compete in the mobile and internet market.

However, 2degrees chief executive Eric Hertz was worried what the open-access model would look like.

"We're waiting on the specifics. When the two incumbents get together and get Government subsidy to extend their network, then I'm concerned," he said.

Hertz was also wary of whether 2degrees would have the ability to put equipment on the existing cell towers that fell outside the terms of the scheme.

These towers are regulated by the Commerce Commission and the Herald understands there are barriers to mobile companies co-locating equipment on them.


The initiative will provide:

80 per cent of rural households and business with speeds of at least 5 Mbps on fibre.

93 per cent of rural schools with speeds of 100 Mbps on fibre.

154 new cellphone towers, extending 3G mobile coverage.

Will happen over six years, beginning July 1.