As speculation mounts the telco will break up so it can join a Govt broadband scheme
Telecom chief executive Paul Reynolds has sparked market chatter that the telco is set to carve up its network after comments last week it would consider new structures in order to participate in the Government's billion-dollar fibre broadband network.
While spinning out Telecom's network assets seems a logical step, telecommunications
analyst Rosalie Nelson of IDC is wary of the view that it's as easy as cutting a hot knife through butter.
She said it was likely to cost a lot of money - Telecom will spend more than $150 million on operational separation this year alone - and the nature of telecommunications means it is not simply an easy divestment of a business unit.
"I hear people talk about it as if it is a very simple solution. It's not, it really isn't," said Nelson.
The transport network is at the heart of what telcos do, said Nelson, with layers of technology, services and applications built on top.
"As we've seen even with operational separation, even unpicking that kind of of integration is complex and costly," she said.
Nelson said it was difficult to imagine what demerging Telecom's network assets would actually mean given the absense of concrete information.
"What I would expect is there would be some form of public offering. There would need to be a fair return to shareholders for the copper assets and there would need to be some recognition in the migration of the fact that copper is a very significant earner for Telecom," Nelson said.
"My expectation would be that there would be a shareholder and ownership restructuring, but Telecom would continue to have a stake, probably the Government would have a stake as would the public and other parties.
"But I would not expect it to be solely about Telecom either. I believe the Government would be looking to include a wider range of players in whatever the final solution is. So I wouldn't necessarily anticipate it would be a one-on-one deal with Telecom."
Commercial negotiations continue under secrecy to establish partnerships between the Government and the private sector to roll out high speed broadband connections to the doorstep of 75 per cent of New Zealanders backed by $1.5 billion of taxpayer funds.
Any player with a retail business would need to cede control of the infrastructure vehicle to participate in the scheme.
Enshrining the principle of open access across the natural monopoly created by the fibre networks seeks to ensure there is no re-litigation of the challenges that came with the copper network.
Goldman Sach JBWere analyst Triston Joll agrees with the view that merely slicing off the network business - called Chorus - is an overly simplistic view.
He said a lot of the costs and difficulties Telecom have talked about in the past are still relevant.
Joll cites the Singapore model which has seen incumbent SingTel transfer network assets into a new asset company, Opennet, and sell down its 30 per cent stake in that company by 2014.
So why haven't Telecom structurally separated in the past?
Even with the present model of opperational separation there is still value to be had in being an integrated company.
One market commentator said the board had seriously considered structural separation in 2007 but chief executive Paul Reynolds, fresh from an operationally separated BT, had convinced them it was possible to make it work.
First NZ Capital analyst Greg Main said Telecom would only participate in the ultra-fast fibre broadband scheme if there was a strong value proposition for them.
He said it would take seven to ten years for networks to be built out and even longer for people to switch across.
SUM OF THE PARTS
Retail
Sells voice, broadband and mobile services to residential and small business customers. Net operating profit 2009: $748 million.
Wholesale and international
Sells broadband, backhaul, voice and data services to telecommunication retailers and interconnects international calls and data. Net operating profit 2009: $441 million.
Chorus
Operates the phone exchanges, copper and fibre networks. Net operating profit 2009: $553 million.
AAPT
Australian telecommunications provider that owns a voice and data network. Net operating profit 2009: $88 million.
GEN-i
Provides ICT and telecommunication services to corporate customers. Net operating profit 2009: $469 million.
