Vodafone NZ's purchase of TelstraClear for $840 million will see it challenge Telecom's long-running domination of the local market - although across the Tasman analysts say Telstra should be celebrating a sale price as much as about $350 million higher than market expectations.

Vodafone NZ, which is a subsidiary of the British telecommunications giant Vodafone, will acquire TelstraClear's voice and data services, network infrastructure, and customers.

Telstra chief executive David Thodey said the move had a "strong strategic rationale".

He said the sale fitted with the telecommunication giant's strategy and capital management framework outlined in April.


"The deal is a natural one, bringing together TelstraClear's fixed telecommunications and data products and corporate client base with Vodafone New Zealand's mobile offering and retail customer base."

Telstra said it would return about $490 million in cash from the sale to its Australian business through the use of a special dividend. However, it also said its accounts would take a A$130 million foreign exchange hit in both its 2012 and 2013 financial years.

Research by AUT University last year showed Telecom had 49 per cent of the home broadband market, TelstraClear had 16 per cent and Vodafone 13 per cent.

Paul Brislen, head of the Telecommunications Users Association (TUANZ), said the deal was likely to challenge Telecom's dominance. "On the one hand, it's good to see a company finally having the scale to take on Telecom and actually be a serious competitor," he said. "With TelstraClear's network behind it, we will start to see some real competition, I would hope.

"We don't want to see a cosy duopoly where both of them just sit back and carve up the market."

As part of the sale, Telstra had entered into an agreement with Vodafone NZ to ensure service continuity for its customers.

The sale is contingent on New Zealand regulatory approval, which is expected to take some months.

TelstraClear's chief executive Allan Freeth said the deal would not change the products and services offered by TelstraClear.


"The acquisition, if approved, will create a new force in the New Zealand market in readiness for the ultra-fast broadband rollout and will provide customers with a full suite of fixed and wireless telecommunications and data products," Freeth said.

Telecom's acting chief executive, Chris Quin, said the company was well-positioned to thrive in a consolidating industry.

"Telecom is in an extremely strong position to compete, no matter if this acquisition goes through or not," he said.

"While the changes to the industry dynamics from this proposed transaction are not yet clear, we are well placed to compete on both of the key areas of competition." He said Telecom had confidence in its mobile phone network and that it was a market leader in broadband.

"We also know how distracting major transactions such as Vodafone's can be at both a regulatory and local execution level, and it is not a done deal yet."

In Australia, RBS analyst Fraser McLeish said Telstra could use the money from the sale to expand. "That's money that's available for potential capital management, or potentially small acquisitions." He said the deal price was a coup for Telstra. "It's a good price. We were expecting around A$375 million ($481 million) to A$425 million. [TelstraClear] is an asset that we think doesn't have too much strategic value for Telstra and has been underperforming over the recent years."

TelstraClear was formed in 2001 when TelstraSaturn bought New Zealand telco Clear Communications.

Telecom shares closed up 5.5c yesterday at $2.58. Telstra shares, which are listed in New Zealand and Australia, closed up 4c at $4.97 on the local bourse.

The deal

* Vodafone NZ buys TelstraClear for $840m.

* Deal includes voice and data services, network infrastructure and customers.

* Price is up to about $350m higher than market expectations.

* Purchase is subject to regulatory approval.

This story restores the original version, which was later erroneously corrected at the request of Vodafone. Vodafone says that the following quote: "The acquisition, if approved, will create a new force in the New Zealand market in readiness for the ultra-fast broadband rollout and will provide customers with a full suite of fixed and wireless telecommunications and data products" should have been attributed to TelstraClear's Allan Freeth, and not Russell Stanners, chief executive of Vodafone NZ, as it had earlier said. Vodafone apologises for the confusion.